Also known as a sinking fund, it is basically a savings pot for future works or large unforeseen expenditure. The lease should always be referred to prior to collecting money for a reserve. If it doesn’t mention this then it is best assumed one is not permitted.

Collecting for a reserve should be discussed with the client in advance and added to the budget for the forthcoming year. If there is a surplus in the year end accounts and the lease permits (and the client agrees) this surplus can be transferred to the fund if it is not being returned to the leaseholders. It is important when budgeting for the reserve to ensure costs being collected are ‘reasonable’ and can be shown as such.

There are very little circumstances that can be classed as emergency works - damp, water coming in, lifted carpets - save for a bus coming through the building, it is mostly just lack of building maintenance, foresight, preparation and the future provision of funds (budget/reserve).

Having this available ensures any future funding can be in place to avoid the need of requesting extra sums from leaseholders. As it is generally not permitted within the lease to request sums outside of the service charge dates, this is best practice.

Funds from the reserve should not be used for day to day expenditure and only expended on the clients approval.

Should you have any questions on this topic or any others, please feel free to get in touch!