What is a ‘Sinking Fund’? | Frequently asked questions

What is a ‘Sinking Fund’?

To try and avoid unexpected and expensive bills being charged to leaseholders, many of the lease agreements for the leasehold and shared ownership properties include the requirement for the landlord to collect a contribution from leaseholders at the scheme. The contribution collected is used to build up a pot of money to fund major repairs at the scheme. This fund is sometimes referred to as a Sinking Fund, Long Term Maintenance Fund or Reserve Fund.

The money collected into the Sinking Fund for each scheme is used to pay for major work and re-decoration required at the scheme. In most cases a full consultation will take place prior to major work being ordered in line with the requirements of the Common hold and Leasehold Reform Act 2002.

Transactions to/from the Sinking Fund account are detailed in Section F ‘Maintenance Provisions’ of the Service Charge Accounts (where applicable).

Each scheme has its own bank account and interest is added to the account for any interest due on credit balances in the account.

Examples of the type of work that may be funded from a Sinking Fund include: Re-decoration programme; Window and door replacements; Warden Call equipment renewals; Lift replacement etc.

Stock Condition Surveys provided by the Asset Management team are used to estimate the amount of money we will need to spend on major works etc. over a 60 year period. This information is used to help us estimate the amount of money we will need to collect into the Sinking Fund.

 

The sinking fund collected for each scheme is used solely for work at that scheme. We do not pool together all the sinking funds we collect from different schemes and then use these to fund work at other schemes.

Where a sinking fund contribution is required, the method of collecting contributions to the sinking fund will vary according to the terms of the lease.  

In some cases the lease may state that the landlord will collect a sinking fund contribution from leaseholders at the schemes as an annual charge. In this case, the contribution is normally included in the service charge contribution which is payable on a monthly basis.

In other cases, the contribution to the sinking fund is collected when a leaseholder re-sells the property and is normally collected as a % charge for each year and part year of ownership up to the time of completion of the re-sale. The exact % charge collected when you sell your property is detailed in your lease and will vary from scheme to scheme.

As the method of collection and the amount paid into the sinking fund varies from scheme to scheme depending on the terms of the lease, please check your lease for further information about this. Alternatively, please contact your Leasehold Officer for your scheme who will be able to check the terms of your lease agreement and clarify this for you.