A sinking fund is mentioned in our lease; what is it?
Many buildings that operate under leases dating back to the mid-1900s operate on the inefficient basis of charging leaseholders for any major works that are done, when they are done. This can result in a leaseholder paying, for instance, an annual £4,000 in service charges within five years of buying the flat, only to be hit by a staggering £10,000 bill in the sixth and seventh years when major works are done. The remedy for this type of spiky cost is to smooth out leaseholders’ annual payments by creating a sinking fund or reserve fund. This is used to save up money over a period of several years, in order then to spend it on major works when needed. In order for a sinking fund to be created, the lease must allow for this. Many older leases have no clause or provision for a sinking fund. When a landlord collects money from leaseholders for a sinking fund, he or she is essentially holding this money and the interest that it earns on trust for the leaseholders. The law says that sinking
