Sinking Funds and Reserve Funds
Posted on 30th May at 02:00 PM
Many residents who hold their property on long leases will often be contributing towards a sinking or reserve fund. Such funds can only be collected if the lease so allows and any monies collected through the sinking fund must:
- be held in a separate bank account since the landlord is holding those funds on behalf of the leaseholders.
- be spent at the development from which they were collected.
Landlords or managing agents cannot therefore use a sinking fund from one estate or block to pay for the cost of switchover on another.
Although Housing Associations are exempt from the requirement to hold these funds in a separate bank account under legislation, nevertheless, the Housing Corporation in its Charter for Housing Association applicants and residents states that Housing Associations must hold such funds “in trust” and this means at least one separate bank account for all leaseholders.
For schemes or developments where a housing association is the managing agents for other landlords, then the exemption does not apply and a separate bank account must be opened for each development where leaseholders are contributing towards the sinking fund or reserves.
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