What is a reserve (sinking) fund?
A reserve or sinking fund is money collected from leaseholders in advance, through the service charge, to spread the cost of future major expenditure such as roofs, lifts and external redecoration. It is only chargeable if your lease permits it, the money is held on trust for leaseholders, and contributions must be reasonable.
The idea behind a reserve fund is simple and, at its best, fair. Big items — a new roof, a lift overhaul, a full external repaint — cost tens of thousands of pounds and only come round every ten or twenty years. Rather than hit whoever happens to own the flat in the year the work lands with a single enormous bill, a reserve fund collects a bit each year so the cost is smoothed across time and across owners.
Only if the lease allows it
A landlord cannot simply decide to build a reserve fund. The power to demand contributions to one must be found in the lease. If your lease provides for a reserve or sinking fund, contributions are payable through the service charge in the usual way. If it is silent, they are not — and a demand for reserve-fund contributions can be challenged at the First-tier Tribunal.
Contributions must still be reasonable
Like any service charge, reserve-fund contributions must be reasonable under Section 19 of the Landlord and Tenant Act 1985. A fund needs to be big enough to meet foreseeable major works — but a landlord cannot over-collect and sit on an unjustifiably large surplus. If the annual reserve demand looks disproportionate to the building's actual maintenance plan, it is open to challenge.
How it interacts with major works and balancing charges
A healthy reserve fund softens the blow when major works and their Section 20 consultation come round — part of the cost is already in the pot. Where the fund does not fully cover the works, the shortfall is demanded from leaseholders, sometimes appearing as a balancing charge once the year-end accounts are settled. When buying, the current reserve balance is one of the first figures to check on the LPE1 — a depleted fund alongside looming works is a red flag.
How this shows up in your service charges
Reserve-fund contributions can be a large slice of your annual bill — and one of the easiest to over-collect. Our free AI audit checks whether your lease actually permits a reserve fund, whether the contributions are reasonable, and whether the money is being held correctly on trust. It reads your demand, accounts and lease and shows you what could be challengeable under the Landlord and Tenant Act 1985.
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