Charges
Sinking Fund
It is important to understand the difference in purpose between the service charge as described on the previous page and what is known as the reserve fund, or ‘sinking’ or capital expenditure (capex) fund. Some other property management companies imply the inclusion of the reserve fund when talking about service charges in general. The Directors of Termstake have requested the managing agent to be clear in all correspondence when referring to either or both of these items.
Included in the service charges are items to cover minor repairs and small costs of maintenance for day to day issues. What are not included are larger costs of maintenance and any major expenditure considered as an improvement to the property. Examples of such items could be external repainting of the building, internal repainting and/or re-carpeting/tiling of common areas like the stairwells, installation of new fences and/or gates, repairs/re-felting of the flat-roof canopy, repairs to the main roof, repairs/replacement of the barge boards or wooden window sills, installation of new security features like better lighting and entry-phone systems, protective measures to limit further tilting of the front wall, major earthworks or corrections to subsidence and so on. In the vast majority of cases, such items improve the general fabric of the property and are for the collective benefit of all owners, potentially with positive effects on lease selling prices.
If items like these were to be included in the annual service charges then there would be little stability in the amount charged from year to year, there would be separate extra invoices issued to cover the extra costs and the administrative cost overhead would be far higher.
To minimise this, a reserve fund exists into which each owner contributes regularly an equal, non-refundable amount in addition to the service charges. The prime purpose of this is to act as a cushion against major expenditure either absorbing the whole cost of a required action or at least being able to offset some of the cost, the balance then being invoiced separately to the owners. It is the policy of the Directors to limit any such balancing charge on projects wherever possible although acknowledging that this has to be done from time to time. MORE >>>