Reserve fund explained

Reserve Fund Overview

A reserve fund, also known as a sinking fund, is a savings account set aside for future building repairs, maintenance projects, or unexpected large expenditures. The building lease should always be referenced to determine if collecting money for a reserve fund is allowed, as some leases may prohibit it. If the lease is silent on the issue, it is generally assumed that a reserve fund is not permitted.

Establishing a reserve fund should be discussed in advance with building owners. The expected annual contributions should be included in the building’s budget. If there is a budget excess at the end of the year and the lease allows excess funds to be transferred (with owner approval), the excess can be moved to the reserve fund instead of returning it to owners. When budgeting reserve fund contributions, it is important to ensure the projected costs are reasonable and documented.

There are very little circumstances that can be classed as emergency works – damp, water coming in, lifted carpets – save for a bus coming through the building, it is mostly just lack of building maintenance, foresight, preparation and the future provision of funds (budget/reserve). Most expenditures are for routine maintenance and repairs that could be planned and funded in advance through a well-managed reserve account. Having reserve funds available eliminates the need to request unexpected special assessments from owners. Since building leases typically do not allow for charges outside of regular service periods, a reserve fund is a best practice.

Money in the reserve fund should only be used for its intended capital projects and repairs, not daily operating expenses. All expenditures also require approval from the building owners.

If you have any questions, we invite you to contact us or visit our office in Leeds for a discussion over coffee.

Angels Wing 3, Hunslet, Leeds, LS10 1AF
0113 222 4537
Info@valorproperties.co.uk
www.valorproperties.co.uk

Bethany Nicol February 2024