What Is a Reserve Fund? (& Why Should You Care?)

A reserve fund (sometimes called a sinking fund) is one of the most important components of block management, and yet it’s often the least understood. If you own a leasehold flat, chances are a portion of your service charge is allocated to this fund. And if it isn’t, you should ask why.

The reserve fund is essentially a long-term savings pot. It is in place to cover major works that are too large to pay for out of the annual service charge budget, like replacing the roof, redecorating the exterior, refurbishing the lift, or upgrading outdated fire systems. Without a healthy reserve fund, the building is potentially exposed. When the time comes for these big-ticket items, the managing agent has no choice but to issue a one-off demand to all leaseholders. These demands often run into thousands.

By contributing little and often into a reserve fund on an annual basis, the building protects itself, and you, from any kind of financial shock. It also ensures that major works can be planned with confidence, which leads to better procurement, more competitive pricing, and less disruption. Also, in terms of resale value, lenders and surveyors now frequently ask about reserve fund levels as part of the conveyancing process. A well-funded reserve is always a positive for a building’s health and future success.

Pont & Lyall take reserve fund planning seriously by modelling year-on-year contributions and not blindly just topping it up as part of the annual budget. We look at the age and condition of your key assets, whilst factoring in inflation, and create a multi-year funding plan that keeps your building protected without overburdening your service charge. Good management isn’t just about what’s happening now, it’s about planning for what’s coming next.