Reserve Funds Explained

A Reserve Fund, also sometimes known as a Sinking Fund, is essentially a savings account which builds over time to meet large planned works projects and any unexpected large items of expenditure.

It is intended to try and avoid the need for owners to have to pay a large one-off payment to cover projects such as repairs and redecoration to leasehold buildings, lift replacements, road repairs and so on.

Usually there will be a Planned Maintenance Programme, drawn up with the assistance of a surveyor and/or other experts, with a ten-year plan (sometimes longer) setting out when certain large expenditure projects are to take place and an anticipated cost. From that reserve contributions over that ten-year period can be calculated.

Reserve Fund contributions usually appear as a separate item on the Service Charge Budget.

Whilst it is good practice to set up and have sufficient contributions each year to a Reserve Fund, some poorly drafted leases and deeds do not give the power to collect such a fund.

For a Summary of your Legal Rights and Obligations concerning Service Charges and Reserve Funds click here.