Building up reserve fund

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    Building up reserve fund

    There is no stipulation in our lease to build up either a reserve or a sinking fund. The secretary has now asked to up the service charge paid monthly so that a reserve is built up, are they allowed to build up a reserve fund. I am not against a small one but we have been paying 65 and they now want to double it I know this is not a large amount but as the paint work is based on a one fourth and a one eighth that cannot come out of the service charge and also I am responsible for the damp proofing as this is also not covered in the lease so dont want to have to put away for damp and also for service charge extras we have just had the roof done and there was plenty of money in the bank for that, the drains have been done so we only have the garden to pay for, and insurance.

    #2
    Can I reorder it as follows as I had to do this to read it, and I ma the master of the run on sentence


    There is no stipulation in our lease to build up either a reserve or a sinking fund. The secretary has now asked to up the service charge paid monthly so that a reserve is built up: are they allowed to build up a reserve fund?

    FYI
    I am not against a small one but we have been paying 65 and they now want to double it.

    I know this is not a large amount but as the paint work is based on a one fourth and a one eighth that cannot come out of the service charge.
    As I am responsible for the damp proofing, as this is also not covered in the lease, I don't want to have to put away for damp and also for service charge extras.

    We have just had the roof done and there was plenty of money in the bank for that, the drains have been done so we only have the garden to pay for, and insurance.
    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


      #3
      the answer is no, both to paying monthly if the lease says otherwise, and no to a reserve fund if there is no provision for that.

      However if they plan to spend the money in that year, then yes they can up the service charge for that year, on the basis of a reasonable provision.

      There is nothing to stop them setting out a plan and asking people to make a voluntary contribution to a reserve fund or to make provision themselves.

      Given interests rate levels, with enough advance notice people are better off putting it on deposit or into no risk tax efficient investments.
      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
        Many of the leases in my local area tend to be of a very similar format and often are very vague about everything, no provisiuon for payment on account or reserve fund, but the local LVT/FTT has often said it would be better if there was some sort of reserve fund (even though the lease doesnt require one), Ive thought this rather odd as they dont comment any further, they just leave it upto the freeholder and leaseholder to (maybe) agree of how to set one up, but given that the two parties have just been 'against' each other in a court setting, agreeing to set up a reserve fund may not be easy.

        As LHA has said, its prob better for individual to invest/save the money somewhere that actually pays interest.
        Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

        I do not accept any liability to you in relation to the advice given.

        It is always recommended you seek further advice from a solicitor or legal expert.

        Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

        Comment


          #5
          leaseholdanswers,

          Thanks for that again!! you are always so helpful.

          Comment


            #6
            If a reserve fund is paid into does this have to be paid into a separate account!! They have set out a plan for the rest of the year which seems to be over inflated to me 500 pounds a year for trees to be pruned, (and in 35 years of owning the flat we have only ever had two branches taken off) we live in a conservation area so very difficult to get permission to either fell or prune however there is plenty of money in the account and at the end of this financial year after having paid in 250 pounds last month plus the requirement for a 30 increase in the service charge I can see that we will have at least 6000 pounds in the account and as stated the foundations and structure is not mentioned in the lease and the outside decorations have to be separate as the lease states that the Lessee is responsible for outside decorations and because the flats vary in size that has to be sorted out separately so the money cannot be taken out of the service charge account.

            Comment


              #7
              it must be held in trust as service charge money. As it is money that is not often used then the law requires that it be held in an account that pays interest,however given current rates, and bank charges, it would be daft to get .5% and then pay tax, and reduce the SC current account and attract more bank charges.
              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


                #8
                I have mentioned that to them but they want to keep it in the ordinary Service Charge account instead of a separate account. I myself prefer to keep the money and if necessary pay if and when! Is that allowed!!

                Comment


                  #9
                  Originally posted by surreygirl View Post
                  I myself prefer to keep the money and if necessary pay if and when! Is that allowed!!
                  The problem then is that a large expense isn't averaged out over years.

                  The theory is great but reserves are tricky for flat owners even if the lease mentions the word 'reserve' as we discovered.

                  Our lease lists lessor's expenses under an opening: "money actually expended or reserved for periodical expenditure.." and under the accounting requirements says: "accounts of the lessor's expenses [...] distinguishing in each case between actual expenditure and reserve for future expenditure.."

                  So years ago, long before RTM, when we were required to pay a reserve fund and no Long Term Maintenance Plan was supplied, nobody thought twice and just paid the extra.

                  For years the annual budget was never revised as annual costs rose. I&E surpluses created by the 'reserves' payments were used until the annual costs swallowed them. Flats didn't notice because nobody reads accounts.

                  When it came to needing big non-annual jobs done there was no reserve fund, just large year end balancing charge. S20 never got mentioned.

                  An LVT hearing on various things decided our lease didn't allow a reserve fund but there was no way to award the money back as it had been spent on annual costs in lieu of an increased service charge.

                  This overlooks that flats change. If there had been no 'reserve', the service charge would have had to go up to meet the increasing annual costs and the old timer owners wouldn't have effectively bank-rolled the newer ones who benefited from the charge remaining unchanged.

                  A reserve fund shouldn't be an advance 'loan' for future annual costs but for averaging the big periodic ones required under the lease. If done right per the RICs code it ought to be a good thing. Who wants to buy a flat and be told a few months in that the roof needs fixing and the previous owner of 30 years never contributed?
                  Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

                  Comment


                    #10
                    The one benefit of a seperate freeholder is the ability to have somone with a long term interest as opposed to short term.

                    Comment

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