When properties form part of a larger development, such as part of a historic estate or a block of flats, you might imagine how complicated it might be to undertake the maintenance of common areas such as driveways or a roof.
Reasonably, each occupier of the block of flats should be expected to pay towards the maintenance of these common parts and any repairs and/or decoration that is needed from time to time. However, as flats within the building are bought and sold over time, it might be that one day, perhaps 15 years into the building’s life, there might be some significant expenses due for roof repairs or to resurface a car park.
This pressing expenditure might be urgent and expensive, but if you have just bought a flat you might, not unreasonably, feel rather aggrieved to be faced with a £3,000 bill for works to your building’s roof! This is where a sinking fund comes in.
A sinking fund is basically a savings account managed, usually, by the building’s managing agent. The sums paid into it should be calculated so as to allow for a fund to be built up over time to cover such capital costs as well as less significant annual charges for things like repairs and redecoration. This fund is usually held in an interest-bearing account.
There might also be charges for periodic maintenance such as re-painting or the cutting of lawns, etc. These charges are covered by a service charge which is usually billed annually or quarterly by the managing agent.
In addition to service charge and sinking fund, most tenants are also responsible for the payment of an annual rent known as ground rent or peppercorn rent and an insurance rent which is a pro-rata sum of the insurance premium billed each year for the entire building. This will not include contents insurance but will usually include a premium for things like public liability insurance in the event that, for example, the postman might slip and fall in a common area such as a stairwell.
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