buying, selling property UK

Guide to buying and selling property in United Kingdom

Frequently Asked Question - If a 'sinking fund' is mentioned in the 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 fund money must be held in a trust account for the building that is separate from the account in which regular service charges are held. If and when the building freehold is sold, the money in the sinking fund must be returned to the leaseholders.

© 2007-2008 Web Site Factory  All rights reserved.
Cont@ct us