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Service charge and sinking fund policy

This policy outlines what service charges and sinking funds are, how we calculate and apply them, and our responsibilities surrounding them.


The purpose of the service charge and sinking fund policy is to set out clearly for customers and colleagues the circumstances in which we will apply service charges and sinking funds to ensure that we comply with legal and regulatory requirements and best practice.

We are committed to providing high quality services which offer value for money for Magna and for customers, paid for by service charges which are easy to understand and transparent for customers.

Scope of policy

Service charges

This policy applies to all customers who pay a service charge.

Sinking funds

This policy applies to all customers who contribute or may be required to contribute to a sinking fund.

Policy statement

We aim to ensure the following when applying services charges:

  • Our approach is fair, open and transparent.
  • We cover our costs and ensure value for money when procuring services.
  • We deliver services that help to ensure our properties meet the Magna Standard;
  • The services provided help to keep customers safe in their homes;
  • Costs are affordable

What is a service charge?

A service charge is a charge made to tenants, leaseholders and freeholders towards the cost of services and benefits provided for them beyond the benefits of enjoying occupation of their own home. Service charges arise from the cost of providing and maintaining such services and may be specific to a building, estate, area or individual home.

Magna operates a system of variable service charges. We will levy a service charge wherever a service is provided that is capable of being lawfully service charged and where it is value for money to apply that charge. We are required to meet our financial, legal, health and safety and other commitments, whilst making proper provision for future repairs. We aim to ensure that service charges cover the cost of providing services.

We will add a management fee of up to 20% to most service charges towards the cost of calculating and administering service charges. There are some service charges to which we do not generally add a management fee; these include most personal charges, the cost of building insurance charged to leaseholders and management fees charged by external management companies.

We will consult customers about proposed changes to existing services or the introduction of new or additional services before their implementation. Service charges are reviewed annually with the revised level payable from April each year.

We will calculate an estimated service charge with the intention of recovering the cost of services provided from those who benefit. We will give all customers full information about what makes up their estimated service charge and the cost of each service they are expected to pay for, in February each year.

We will send service charge statements showing the actual costs for the previous financial year to customers annually in September. Service charges will be separately identified within the gross amount of rent payable by customers.

Sewage treatment facilities

We will compare our costs and proposed charges with water suppliers annually and aim to keep costs to customers living in a Magna home broadly in line with what they would pay if their home was connected to mains drainage network.

We will use this figure as a guide limit for the total of the weekly service charge and sinking fund contribution and cap at this level. We will increase this figure in April by the preceding September’s CPI figure +1%. Customers living in homes not owned by Magna will be charged the full cost of the services.

Sinking funds

The purpose of a sinking fund is to make provision for the future costs of structural repairs and the maintenance and/or replacement of capital items, works, services or facilities which are not provided for in the net rent charge or standard service charge. Magna will set up, maintain and collect contributions to sinking funds from customers in line with our occupancy agreements and from leaseholders where the lease permits it. Where a lease does not require such contributions, Magna will seek a voluntary agreement with leaseholders.

Magna will set contributions to sinking funds at a level which aims to recover the full maintenance and/or replacement costs taking into account the forecast life of the item and the estimated cost. Sinking funds for communal car parks will be set up when a new car park is created or when an existing car park is resurfaced or improved substantially.

Sinking funds for sheltered and supported communal facilities will not be used for structural work or for installations for water, gas, oil, electricity, heating or hot water. Sinking funds will be established for all schemes with sewage facilities in order to build up financial provision for major works such as replacements and improvements to the equipment. Where major works are undertaken but the sinking funds are insufficient, freeholders will be invoiced for their share of the difference where their conveyance of sale allows it.

A review of all funds’ liabilities will be made at least every five years. Sinking fund balances will be held in trust and will be kept in a separate bank account. Any interest earned on the account will be apportioned to the individual sinking funds. We will provide current contributors to sinking funds with annual statements showing the amount of money held, as at the end of the previous financial year, in any sinking funds into which they have paid.

If a sinking fund is no longer required, the balance will be refunded to all current contributors in proportion to their respective liabilities. If there are no current contributors, the sinking fund will be dissolved as at the date of the termination of the tenancy or lease of the last of the contributors and the balance of the fund shall be retained by Magna. In the event that we transfer a building with current contributors to a new landlord, we will transfer the sinking fund(s) to that new landlord.


The Interim Director of Housing Services is the accountable person in relation to all aspects of service charges and sinking funds at Magna and is responsible for the development and review of this policy, ensuring that this meets all regulatory requirements and guidance.

The Head of Finance is the accountable person for ensuring the accurate calculation, account reconciliation and application and billing of service charges annually and at times in between as necessary and the review of sinking fund liabilities.

Governance, Performance Management and Review

This policy will be monitored and reviewed annually by the Interim Director of Housing Services and the Financial Services Manager.

The policy will be considered and approved every 5 years by Risk and Audit Committee in line with the policy review timetable.