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Service charges and sinking funds

Service charges

What is a service charge?

You may pay service charges in addition to your rent. If so, you will receive details of any service charges at the start of your tenancy. Service charges cover services, repairs, maintenance and other costs, which vary from year to year. Examples of items classed as services include the following:

  • Cleaning and servicing communal areas
  • Refuse services
  • Fire alarms, detection and fire fighting equipment
  • Door entry maintenance
  • Lighting in communal areas
  • Maintaining communal equipment.

This list is not exhaustive.

How we work out service charges

Service charges are based on the estimated costs of providing services to you. We will tell you about these estimated costs before the start of each financial year. At the end of the year, we will work out the actual cost of providing these services. We will tell you each year about the actual cost of providing the service for the previous financial year. We will then make an adjustment for any under or over payments you have made in the following financial year.

Sinking funds

What is a sinking fund?

A sinking fund is set up with the intention of collecting money from residents who benefit from communal equipment that is not covered by their rent.

The purpose of a sinking fund is to build up a balance of funds which can be used to offset the replacement cost of communal equipment. The aim is to cover the replacement of existing communal items on a like for like basis. This spreads the cost of the items over a number of years and avoids one off large demands for payment from residents.

The sinking funds are collected as part of the service charges levied on residents.

Who is expected to contribute?

Any residents who benefit from communal services are expected to contribute if their scheme or building has a sinking fund set up. Leaseholders who own flats are also expected to contribute towards the maintenance of the building.

How do we decide the level of your contributions?

  • We identify the type of equipment or repairs required.
  • We estimate the likely replacement date of the equipment.
  • We estimate the likely replacement cost of the equipment.
  • We then calculate the contribution required in order to replace the equipment on a like for like basis in the future.

Every five years we review these assumptions with the aim of adjusting the level of contributions if required.

How are the sinking fund contributions collected?

The sinking funds are collected as part of the service charges levied on residents.

What do we do with the contributions?

The money paid into the sinking funds is held in a separate bank account. We can only spend it on relevant equipment for your scheme or building.

Is interest earned on the sinking fund contributions?

The sinking fund money is held in a deposit account with the view of earning bank interest. However, due to the historically low interest rates, the current interest earned is minimal. Any interest earned is also subject to tax under the taxation rules for trusts.

Are the sinking fund balances repayable on the termination of a tenancy?

Balances are not repayable on termination of tenancies or leases. However, if the sinking fund is no longer required then the funds held are repaid to the residents who have contributed after deducting the cost of replacement items on a first in first out basis.

How are leaseholder sinking funds treated?

Where a leaseholder contributes towards the maintenance of the building, their contributions are recorded separately and are used to pay for capital replacement or repairs as and when they occur. If the sinking fund does not have enough money to cover the repairs, leaseholders are expected to fund the balance.

When a leaseholder sells their property the fund is transferred to the new leaseholder.

How do I know the balance held in the sinking funds that I contribute towards?

Once a year in July we send you a statement showing the balances on all sinking funds that you have contributed towards in the year.