# Reserve fund

Money collected from leaseholders in advance, where the lease allows it, to spread the cost of large future expenses such as roof replacement or redecoration.

Also called: sinking fund, reserve, contingency 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 charges](https://runyourblock.co.uk/glossary/accrued-uncommitted-service-charges).

## 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](https://runyourblock.co.uk/guides/running-your-block/reserve-funds).

## Related terms

- [Service charge](https://runyourblock.co.uk/glossary/service-charge)
- [Trust money (section 42)](https://runyourblock.co.uk/glossary/trust-money)
- [Section 20 consultation](https://runyourblock.co.uk/glossary/section-20-consultation)
- [Accrued uncommitted service charges](https://runyourblock.co.uk/glossary/accrued-uncommitted-service-charges)

## Sources

- [Landlord and Tenant Act 1987, s.42 (service charge contributions to be held in trust)](https://www.legislation.gov.uk/ukpga/1987/31/section/42)
- [Landlord and Tenant Act 1985, s.18 (relevant costs include costs to be incurred)](https://www.legislation.gov.uk/ukpga/1985/70/section/18)
- [RICS Service charge residential management code](https://www.rics.org/profession-standards/rics-standards-and-guidance/sector-standards/real-estate-standards/service-charge-residential-management-code)

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Updated 22 October 2026. Source: https://runyourblock.co.uk/glossary/reserve-fund