Sinking Funds

A sinking fund is an amount of money which is set aside over a period of time to cover any major future works needed on communal areas of your development.

We work out how much the sinking fund should hold by estimating the replacement cost of large communal items, such as lifts, over their expected lift cycle. This is the basics for our collection each year, so we should have enough to cover all the costs in the future.

For example, if you were a resident in a block of flats, we calculate the lifecycle of all the communal systems in the block.

• If a lift is expected to cost £42,000 to replace in 20 years, to cover the cost of replacing the lift over its lifecycle the block would need to contribute £2100 each year.
• Each year this cost would be divided between the residents.
• If the block contained 40 flats, each resident would contribute £52.50 per year of the £2100.

Below is an example of systems that may be included in your sinking fund and estimated lifecycles:

• Roofs - 50 years
• Windows, communal doors - 40 years
• External lighting, CCTV equipment, playground equipment - 20 to 25 years
• Fire alarms, communal boilers, internal lighting, fire communal ventilation - 15 years
• Flooring, internal decorations (painting, etc.) - 7 to 10 years

We collect sinking fund contributions through your service charge and hold it in a trust account that pays interest. The interest is added to the fund each year.

We try to avoid this scenario where possible, however unexpected works can sometimes occur meaning occasionally there is a shortfall in the sinking fund. If this was to happen, we'll send you formal confirmation of the final amount of works and any likely shortfall. We'll then divide this shortfall by the number of properties on the development.

Where individual leaseholders may have difficulty paying for the work, we will discuss individual payment arrangements with you and there are a range of options available. 

Your annual service charge statement includes a breakdown of income and expenditure, if you pay into a sinking fund it will be shown in the statement. Alternatively, you can contact us to find out.

If you decide to move on and sell your property, all contributions you make to the fund will remain in the sinking fund attached to your property if you decide to sell. The sinking fund contributions you have made cannot be refunded to you.

The sinking fund will, however, be an asset that will attract buyers and/or secure a better price for your property.

Having a sinking fund in place is not only essential for the upkeep of your home, but also maintains the value and saleability of the property.

A summary of the benefits include:

• Having a fund in place ensures that the cost of major works are paid for equally by all generations of residents, rather than leaving large expenses to be footed by future occupants

• This means that you will avoid having to pay large bills when work does need to be carried out, as there will already be funds in place

• The fund will also help to maintain the value of your home, as future resident’s solicitors will be sure to check the adequacy of the sinking fund before buying

If you’re not contributing into a sink fund as part of you lease, we would strongly recommend that you create a contingency savings fund that acts as a safety net for any future expenses that may occur in relation to the maintenance of your development.

Making regular payments into this fund will enable you to build up reserves for both planned and unexpected maintenance costs on your development.