In this article, we've answered your most commonly asked questions about the sinking fund.
What is a sinking fund?
A sinking fund is a ‘pot of money’ (known as a reserve fund) built up over time through contributions from leaseholders. It’s used to help pay for major future repairs, replacements, and improvements to your building and communal areas, such as:
- Major mechanical and electrical work
- Replacing the roof
- External decorations
- Refurbishing lifts
- Replacing windows
- Structural repairs
Why do I need a sinking fund?
Over time, buildings need major maintenance and repair work to keep them safe to live in.
A sinking fund helps to spread the cost of important work to your building and communal areas over several years. This helps protect you and other residents from having to pay an expensive bill at once when work is needed to keep your building safe and well maintained.
What about the annual service charge I pay? Is it different to the sinking fund?
Yes, they’re both different. Your annual service charge covers the day-to-day costs of managing and maintaining your building, such as cleaning, gardening, insurance, utilities for communal areas, and routine repairs.
The sinking fund is for major work your building and communal areas may need in the future (see the list above).
How are my sinking fund contributions calculated?
Your sinking fund contributions are typically based on:
- The type of major work we think your building will need in the future;
- Professional advice or reserve fund studies;
- What’s laid out in your lease;
- The amount that’s owed by each leaseholder under their lease.
The amount you pay is reviewed regularly to make sure the sinking fund can meet your building’s future maintenance needs.
Can the sinking fund be used for routine maintenance?
No. Your annual service charge pays for routine repairs and maintenance of your building and communal areas. The sinking fund is for major future repairs, replacements, and improvements to your building and communal areas.
What happens if there’s not enough money in the sinking fund?
If major work is needed and the sinking fund balance can’t cover it, you’ll need to make additional contributions through a service charge demand or major works charge – you can find more information about this is in your lease.
If you have any concerns or questions about this, please email the Homeownership team at homeownership@midlandheart.org.uk.
Can leaseholders see how much money is in the sinking fund?
Yes. We include information about the sinking fund balance in the annual service charge accounts document that we send you each year.
What happens to my contributions if I sell my home?
Sinking fund contributions are attached to your home, so they simply transfer to the new owner when you sell your home. If possible, you should get independent legal advice to understand what selling your home means for your contributions.
Will I be told before major work is carried out at my building?
Where we’re required to do so by law, we’ll consult you before any major work is carried out at your building.
Where can I find more information?
If you have questions about the sinking fund, please email the Homeownership team at homeownership@midlandheart.org.uk who will be happy to help.
