Reserve fund

"Reserve fund" and "sinking fund" are often used to mean the same thing. Strictly, a reserve fund saves for planned future costs, and a sinking fund saves to replace something as it wears out.

The key points

• The lease must allow it. You can only collect for future costs if the lease says so.
• It's trust money. Reserve contributions are held on trust for the leaseholders (s.42), so keep them in the company's bank account set aside for the purpose, not mixed with the company's own money.
• It isn't refunded each year like an overpaid running cost. It stays in the reserve until it's spent on what it was collected for.
• It passes on. If management changes, the reserve goes to the new manager with the other accrued uncommitted service chargesAccrued uncommitted service chargesThe service-charge money held by the outgoing landlord or managing agent on the RTM acquisition date, less what is needed for costs already incurred, which must be paid over to the RTM company..

How much to keep

There's no legal minimum yet. A planned maintenance schedule (what will need doing, when, and roughly what it will cost) is the best basis. Spread each future cost over the years until it's due. See Reserve funds.