Interest on sinking fund.

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    Interest on sinking fund.

    I have a flat lease in a building divided up into 5 flats, managed by a reputable managing agents with a separate freeholder.

    There is a large sinking fund of fifteen thousand pounds.

    There is no mention in the accounts of any interest being earned on this money.

    Is there any obligation on the managing agents to earn interest on this money? There is no mention of this in the lease.

    #2
    Probably the agents don't receive any interest nowadays.

    However your question raises an interesting point. With inflation at 4.5%, your sinking fund is actually reducing every year. I don't suppose the agents would be allowed to gamble on the stock market with the sinking fund.

    I remember some years back someone suggested the sinking fund should be used to buy a flat in the block, and that flat let out for income. Anyone know if any blocks ever did that?

    Comment


      #3
      The law is that as well as holding funds under section 42 a trustee is under a duty to invest the trust funds. The investment must be
      in accordance with the terms of the trust,
      the Trustee Investments Act1961 as amended by the Trustee Act 2000 or
      The SI made under the Landlord and Tenant Act 1987 (which enables funds to be invested in a deposit account with certain banks or in a share or deposit account with a building society).

      Trustees who want to take advantage of the wider
      powers of investment under the Trustee Investments Act 1961 should have, regard to the provisions of that Act, particularly with the obligation not to risk the principal.

      In practice banks are offering interest at 0.5% or much lower I have heard of .001%
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

      Comment


        #4
        Originally posted by jamesknight0 View Post

        I remember some years back someone suggested the sinking fund should be used to buy a flat in the block, and that flat let out for income. Anyone know if any blocks ever did that?
        Yes I have several times however advice was always that any loans secured were only for a small proportion of the equity and value. Even in a rising market borrowing more than 50% of the value to buy it puts the client at risk. If you bought in 2005 and borrowed say 80% you would very miserable right now, paying a loan off and not having an asset to borrow against to pay for major works.



        Your accountant must also look at the tax implications particularly if it is to be held on trust, owned by the company especially if the company is made up of majority and not every flat owner, and that the articles authorise this activity, even in some cases amend the
        leases to allow loan repayments and interest.


        In short it makes some sense but it is complicated to do properly.
        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

        Comment


          #5
          Thanks for the replies.

          Comment

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