What is a reserve or sinking fund?

If your lease specifies it then you may be required to pay into a reserve or sinking fund. This is normally a fund of money collected over a budgeted period and set aside to cover the costs of major works such as internal or external decorations, roof repairs or lift replacement works. Building up a reserve or sinking fund helps avoid the need for unexpected additional contributions from leaseholders.

Your lease may require you to contribute towards this fund through your service charge. The amount that you may be required to contribute towards the sinking fund is not usually specified in the lease. It is normally decided by the landlord taking into account the future costs that are likely to be incurred in maintaining and keeping the building in repair. Leaseholders will usually not receive any repayment from a sinking or reserve fund if they sell their property. Landlords must hold all service charge and reserve/sinking funds in trust.