Long Term Maintenance
The Purpose of a Long Term Maintenance Fund
How is it collected?
Types of work covered by the provision
Works not covered by the provision
Where are the sinking funds contributions held?
The Purpose of a Long Term Maintenance Fund (Sinking Fund)
Most leasehold schemes have a provision for future maintenance, which enables you to set aside money for future major repairs and thereby, avoid large unexpected bills in the future.
Sometimes provisions are referred to as a “Sinking Fund” or “Reserve Fund”.
The Long Term Maintenance Fund is similar to a “savings” account for all residents within your scheme. Your contributions will earn interest (less tax) which, subsequently, increases the amount of money held.
Contributions to the fund are held within a separate bank account “in trust” for the benefit of current residents in your scheme. There is no entitlement to a refund from the provision when you leave.
Payments are made throughout the lifetime of the building and contributions must be made by all leaseholders, even if major works are not carried out during the period of your ownership.
Payment into a provision allows you to budget and take away the need to make payments towards large scale, expensive works which may occur in the future.
The existence of a provision can also help you to sell your property, as future occupiers would benefit from the same protection, which the provision offered to you.
A lease normally allows "Johnnie" JOhnson Housing Trust to collect money towards a provision through the service charge or by deducting a specified amount from future sale proceeds. Your lease will specify how your contribution is calculated.
Calculating the sinking fund contribution
Contributions into the provision are calculated using estimates of:
• The life expectancy of each element of the building which will need to be either replaced or repaired
• The anticipated increases in building costs, property values, maintenance costs and interest rates over the next 60 years
Contributions will also take account of:
• The size of the scheme
• The type of property construction
• The existence of any communal areas and other facilities for residents
Types of work covered by the provision
The provision in leasehold retirement schemes can be used for major repairs or for replacing items such as:
- External doors, windows, roofs, gutters, external walls, balconies, and cladding
- External drains and plumbing systems
- Specified fencing, driveways, paths, roads, gates and signs
- Lifts
- Communal heating systems
- Communal electrical systems, ventilation fans, TV aerials and lighting
- Warden call and door entry systems
- Communal laundry equipment
- Furnishings of communal rooms, office, guest room, and corridors
- Accommodation for Shceme Manager - fixtures, fittings and floor coverings (in addition to the items listed above)
You should be aware that the provision does not cover minor day-to-day repairs or external re-decorations, which are paid through the monthly service charge.
Works not covered by the provision
In calculating contributions to the provision, we try to include the costs of all necessary works anticipated for the future. However, in some circumstances, repairs and improvements may need to be undertaken earlier than expected.
It is also possible that residents of a scheme may wish to have additional improvement works undertaken. In both cases, if the provision is not sufficient to cover the costs, residents will be consulted and may opt for one of two payment methods:
- You can pay an additional service charge to cover the shortfall. (The shortfall will include interest payments on money we have to borrow to meet the required expenditure)
- In extreme circumstances we can consider changing the terms of the lease to increase Reserve Fund contributions on future sales. Any variation to the lease would normally require the agreement of all residents within a scheme.
Where are the sinking funds contributions held?
We have set up a separate bank account, for each scheme, into which all service charge payments and long-term maintenance contributions are paid.
Provisions are a new concept for many leaseholders and, although we have provided as much information as possible here, we would encourage you to contact us should you have any queries.
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