RICS code

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    #46
    and the RICS RICS code states
    7.5 the purpose of a reserve fund or sinking fund is to spread the costs of “use and occupation” as evenly as possible throughout the life of the lease to prevent penalising leaseholders who happen to be in occupation at a particular moment when major expenditure occurs.

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      #47
      So would the freeholder be in breach of the lease for not setting up the sinking fund?

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        #48
        No, the lease allows a sinking fund contribution to be included within the service charge which is good practice but it is not obligatory,

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          #49
          eagle2 can you clarify the above please?

          Are you saying RICS code is good practice but it is not obligatory or that the RMC (lessor) has not been/is not obligated in the past or now to demand and collect a contribution to the sinking fund.

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            #50
            If the lease says you can have a reserve / sinking fund, then you can , but only for defined future works.

            If the lease does not mention a reserve / sinking fund, then you can not have one.

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              #51
              Its apparently RICS best practice and prudent to have a sinking fund/reserve however what protection is there for the monies? Also should the monies be kept in an interest bearing account?

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                #52
                The surplus for the year should not be transferred to the reserve/sinking fund. Depending on the amounts involved, if the contribution to the fund has been calculated correctly, any additional contribution must be unreasonable.

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                  #53
                  Originally posted by fos333 View Post
                  eagle2 can you clarify the above please?

                  Are you saying RICS code is good practice but it is not obligatory or that the RMC (lessor) has not been/is not obligated in the past or now to demand and collect a contribution to the sinking fund.
                  Unless the lease states that a reserve/sinking fund must be kept, there is no obligation to operate one but it is good practice to try to smooth the expenditure and ensure that funds are available when they are required.

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                    #54
                    Originally posted by Starlane View Post
                    Its apparently RICS best practice and prudent to have a sinking fund/reserve however what protection is there for the monies? Also should the monies be kept in an interest bearing account?
                    The lease sometimes specifies how the monies should be kept otherwise they should be held in a bank client account. The RICS code 6.1 states only that a managing agent should consider whether or not to hold the monies in an interest earning account and that the monies should be immediately available unless otherwise instructed.

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                      #55
                      The way I operate, is reserved money is just accounted for on the balance sheet to leaseholders.
                      Service charge monies £ x
                      Reserves £ x

                      If you put reserves in interest bearing sub- account, you then have the HMRC SEND YOU LETTERS TO PAY TAX. This is automatic for banks to inform HMRC. Just one more headache one can do without.
                      First time I got this letter, i transfered the reserves back into the normal account. No more tax demands.

                      The interest rates are as low as they can get, so you don't earn enough to even buy a decent meal for two.



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                        #56
                        Originally posted by eagle2 View Post

                        Unless the lease states that a reserve/sinking fund must be kept, there is no obligation to operate one but it is good practice to try to smooth the expenditure and ensure that funds are available when they are required.
                        Post #47 asked "So would the freeholder be in breach of the lease for not setting up the sinking fund?"

                        The OP had already stated that the lease provided for a sinking fund.

                        Originally posted by eagle2 View Post

                        The surplus for the year should not be transferred to the reserve/sinking fund.
                        Further the OP also states the lease provides at the discretion of the lessor transferance of any surplus to the sinking fund.

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                          #57
                          Originally posted by fos333 View Post

                          Post #47 asked "So would the freeholder be in breach of the lease for not setting up the sinking fund?"

                          The OP had already stated that the lease provided for a sinking fund.



                          Further the OP also states the lease provides at the discretion of the lessor transferance of any surplus to the sinking fund.
                          The lease appears to allow the freeholder the option to provide for a sinking fund, it does not appear to say that the freeholder must operate one. So the freeholder is not in breach of the lease whichever option it chooses.

                          The general rule is that surpluses should be repaid or credited against future contributions otherwise the service charges may be regarded as unreasonable under s19 LTA 1985. In this case, the OP seems to be hit twice, once with an unreasonable estimate and then with a demand for a sinking fund contribution. If the sinking fund has been calculated properly, the retention of the surplus at the year end must result in the leaseholder being able to argue that the total charges are unreasonable. The relevant case is Redendale v Modi.

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                            #58
                            Thanks eagle2 for the further explanation.

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                              #59
                              Yes thank you Eagle 2 and RAM all your comments are helpful so reading through the lease the external decoration for the property should have been done 3 years ago and there is no sinking fund for these works as previous tenants have not made any contribution, so no planning no fund and now a big bill for the people this year.

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                                #60
                                Originally posted by Starlane View Post
                                ...so reading through the lease the external decoration for the property should have been done 3 years ago and there is no sinking fund for these works as previous tenants have not made any contribution, so no planning no fund and now a big bill for the people this year.
                                One of the problems with leasehold is that many leaseholders do not understand that they may be required to pay large bills for work that needs to be carried out.

                                If there is no reserve fund being collected they need to set aside money themselves - or be prepared to take out loans if they need them.

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