Q&A - Service Charge Sinking Funds 

Dear Sir

I am writing for help regarding sinking funds. We pay a very high service charge but now over 2 years later we are being asked to pay towards a sinking fund. There are 167 apartments and we are being asked to pay up to £950 a year extra. I thought the developers set up a sinking fund and the owners paid into it as part of their service charge. We’ve had numerous service charge increases in 2 years. We pay part of the security team and other staff not needed. We have finally got a residents committee set up but its not very effective. In short we feel we are being taken for a ride.

Mr Nevitsky

Answer

Service charges are only payable in respect of any item or period of expenditure to the extent that they have been reasonably incurred pursuant to S.19 of the Landlord & Tenant Act (LTA) 1985. If the service charges are unreasonable, an application can be made to the LVT to determine this. Similarly, in relation to the provision of security personnel, these should be specifically provided for within the service charge provisions of your lease and are subject to reasonableness.

In respect of sinking funds, it is considered good housekeeping to provide for the on-going upkeep of the building and structure, providing a source of funding for any likely future major expenditure, however there is no obligation for a landlord to include one in a new lease.

Should your lease permit the recovery of a sinking fund then the fund is required to be kept in a trust account pursuant to S.42 of the LTA. This ensures that any insolvency of the Landlord will not impact upon the sinking fund. In the absence of any specific clause permitting the establishment of a sinking fund, there is no entitlement for the Landlord to impose such a charge upon a tenant.

Paul Sweeney is a Solicitor with JB Leitch