Service charge- excessive reserve fund

laurenapher

hi,
Our question is 'Are we legally required to pay into a reserve fund?' Some background info below! If you can offer any ideas that would be great!!

we are currently paying a service charge of £1250 a year on our leasehold flat in a building of 18 flats. Of this amount, £100 is a ground rent charge, £650 is the service charge amount which goes towards paying for the upkeep of building, genreal costs etc and then the other £500 is paid into a reserve fund for the building. Each of these costs is listed seperately on the breakdown and detailed as seperate costs.

We purchased the flat four years ago and upon moving in, found that there had not been proper managament of the building previously, with no reserve fund for the duration 1988 (when the building was converted to flats) until 2002 when one a reserve fund was finally setup. At the time of purchasing we were made aware that a call to fund was being made to to leaseholders to cover the cost of repairing the roof (it's an old converted church so this was a big job). This cost each flat £5000, so obviously there was not much reserve fund available from where it had been setup previously (I believe around £10,000 at the most).

Wefactored the £5000 into our offerprice and paid this to the maganement company upon moving in.

Since we have lived here, we have paid £500 each year into the reserve fund, so have ourselves paid in £2000 in the fpour years we have been here, each flat does the same so £9000 a year has gone into it. At present I beleieve the amount in the reserve fund to be between £40,000-£45,0000.

We are now questioning why we are continuing to pay such a large amount each year into the reserve fund while there is such a big amount built up, surely now the amount required to pay into this fund should drop to reflect that a healthy reserve has been established. And the reserve fund is asked for separately anyway, it is not billed as part of the service charge, am i right in thinking that they cannot ask for money for something without a bill or an estimate for work to be done and as there is nothing £500 a year is an unreasonable amount?

If anyone has any ideas/ comments we would be grateful,
thanks Lauren

Angelicdevil

Ouchie! That's a huge amount to be paying out!

In my current flat the reserve fund payment is £60 a year per flat. In a previous flat it was only £24 per flat.

Is there a residents committee where this can be raised?

Sorry, I don't have any other advice, just had to comment because I think £500 a year is excessive.

laurenapher

Unfortunately, I beleive this amount was proposed by the residents commitee. I am planning to contact the management agency this week but wanted to get a but more clarity on my rights before speaking to them.

As far as I can see from research so far, it seems that they can only ask me to pay service charge for the amount that is required to cover all the running costs etc and therefore they can't legally request that i pay this into the reserve fund as it is not actually required?

olly300

laurenapher wrote: »

As far as I can see from research so far, it seems that they can only ask me to pay service charge for the amount that is required to cover all the running costs etc and therefore they can't legally request that i pay this into the reserve fund as it is not actually required?

1. What does your lease say?
2. What things need to be repaired on the building and grounds in the next 2 years?

If your lease says nothing and the committee have no repairs planned in the near future you can easily point out to the committee the amount needs to be decreased drastically until they plan on doing a repair.

laurenapher

Thanks Olly, that's basically what I thought.

As far as I can see in the lease they is no mention of a reserve fund or any requirement to pay into one.

As we've just had the roof repaired in the last couple of years there's nothing big planned in terms of repairs or maintanence and all the normal maintenence is covered by the service charge we already pay.

olly300

laurenapher wrote: »

As far as I can see in the lease they is no mention of a reserve fund or any requirement to pay into one.

As we've just had the roof repaired in the last couple of years there's nothing big planned in terms of repairs or maintanence and all the normal maintenence is covered by the service charge we already pay.

I think one of the issues you are going to have unless you can politely mention it to your neighbours who turn up to the residents meetings before hand to get them on your side, is getting people on the committee to agree with you.

Good luck.

pinkshoes

Just challenge it!

I was part of the management company of the flat that I used to own, and we decided that the reserve fund was building up too fast, so we reduced the service charge by 20%.

I'd ask the management company to show all future large expenditures that they are budgeting for (roofing, guttering, windows etc...), how much they expect them to cost, when they expect to need doing, and how this ties in with the current charge paid by all owners.

It should just be a simple spreadsheet showing potential future costs against income, and they need to balance, with a small excess left over.

propertyman

Well I would like to correct a few posts

1; payment of a reserve fund depends on the lease as to whether one is due and for the items it covers.
2; the amount due has to be fair and reasonable very much as Pink Shoes has posted, it dos not need estimates as you suggest, just for it to be justified as fair and reasonable.
3: You do not however have to rely solely on majority agreement, you can arbitrate under the lease or apply to the LVT to determine the amount due.

While £24 is just a silly amount even for a brand new building, and on examination, £500 might be sensible.

It is billed separately as leases often separate the two amounts and it is normal for reserves to be banked separately for the service charge.

http://www.lease-advice.org/publications/documents/document.asp?item=14