If you’ve ever heard the term “reserve fund” or “sinking fund” mentioned in block management meetings or on your service charge statement and found your eyes glazing over, you’re not alone. But this bit of block management jargon is actually one of the most important concepts every resident should understand. So, here’s a plain English breakdown of what it is, why it matters, and what you need to know.
A reserve fund (also known as a sinking fund) is a dedicated pot of money that your building’s management company puts aside over time. Think of it as a rainy-day fund; it’s there to cover big, occasional costs that don’t crop up every year.
We’re talking about major jobs like:
It’s all about financial forward planning, making sure there’s money in the bank to cover expensive maintenance without handing flat owners a sudden, eye watering bill.
Major maintenance costs will inevitably arise in any building. Without a reserve fund, the management team often turns to leaseholders for sudden, significant contributions, sometimes amounting to thousands. However, a well-managed reserve fund helps avoid those unpleasant surprises. For example, if a storm knocks down your perimeter fence or the lift fails after years of use, the building already has funds set aside to cover the repair and deal with it swiftly, without drama.
Most buildings collect reserve fund contributions annually through service charges, so everyone contributes a manageable amount over time. But here’s the legal catch: the lease must include a clause that allows for a reserve fund. If it doesn’t, the management company needs written consent from leaseholders to collect one—and technically, leaseholders can request that money back at any time, which creates uncertainty.
Amend the lease with full agreement from all parties to formally allow a reserve fund. This protects the fund and secures it for future use. Also important: reserve funds must be held in trust (thanks to Section 42 of the Landlord and Tenant Act 1987), kept separate from your everyday maintenance kitty, and – if they earn interest – that income belongs to the leaseholders.
There’s no one-size-fits-all answer. The right amount depends on:
A qualified surveyor typically creates a long-term maintenance plan to predict major future costs. The plan breaks down the total cost year by year and assigns each leaseholder an equal share to build the annual reserve fund target. Reviewing and adjusting the plan each year is essential, as costs shift, inflation rises, and building needs change over time.
We believe in open books. Your reserve fund should never be a mystery.
Reserve funds are for the building’s upkeep only – not for turning a profit, and definitely not for anything unconnected to your block.
Block management can feel like a financial and legal minefield, but it doesn’t have to be. A well-managed reserve fund is a sign of a healthy building and a proactive management team.
Need help getting it right? Whether you’re concerned about how your fund is managed or want to build one from scratch, we’re happy to offer guidance. Drop us a line; no jargon, no judgment, just solid advice.
Contact us:
Brompton Block Management, 85 Stroud Green Road, London, N4 3EG
Article & images by Barefaced Studios
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