Service charge- sinking fund. What percent of service charge should it be?

Dewey30

Hi,

Received our service charge statement today for tax year 13/14. It showed that 75% of our service charge goes into a sinking fund. To us this seems quite high. Does anyone know how much the percent should be? Or can they charge what they like?

Thank you.

sydenhambased

It's a "how long's a piece of string" type question, I'm afraid.
I'm in the process of buying a leasehold flat where the sinking fund is also around 75% of the service charge. It's in a grand old building that'd likely be expensive to repair the fabric of, so we're happy with what seems to be a responsible approach to the sinking fund. It's also a potential selling point - if when you come to sell there's lots of money in the communal coffers you'll be able to justify a higher asking price.

Too many variables to answer your question accurately though!

G_M

How old is the building?
What condition is it in?
Are any major expenditures likey in the forseeable future?
What is the total service charge ( and hence what does 75% actually comprise)?

etc etc

There is no standard amount.

Thrugelmir

How much is currently in the pot?

Dewey30

It is service charge for a group of houses. Less than 4 years old.
Service charge was £1064 for year and £765 was for sinking charge. Currently has £2700 in the sinking fund pot.
Was afraid it was a 'how long is a piece of string' type of question.

Thrugelmir

What shared maintenance costs are the houses responsible for?

patman99

The sinking fund should be large-enough to carry-out any repair required (even if the end bill is covered by insurance) in an emergency.

I live in a developement of 30 flats/houses and we pay £800 p/a for our service charge (we each own 1/30th of the co. that owns the freehold and have appointed a Management Company to do the day to day stuff).

We are trying to get our sinking fund up to £25,000 just in case we need to undertake major works to our access road. However, we only add around 5% of our service charge to the sinking fund.

Richard_Webster

Chances are it is some major item like the maintenance of a private road that won't be needed to be done for some years but will then be a big item.

pinkpiglit

Older developments will likely require a larger reserve fund, however it's better to start saving a good chunk now rather than be hit with a nasty surprise further down the line...... if something crops up that can't be paid by the reserve fund then I think (and someone else will correct me if this is wrong) then you'll have to pay it anyway so a larger pot is better in the long run.

AlexMac

Dewey30 wrote: »

It is service charge for a group of houses. Less than 4 years old.
Service charge was £1064 for year and £765 was for sinking charge. Currently has £2700 in the sinking fund pot.
Was afraid it was a 'how long is a piece of string' type of question.

I suspect you can't do much about it as, presumably in a recent development, the conditions relating to management and service-charges were in the lease or contract which you accepted? And I assume the fund is handled by a freehold or management company which you do not control? It's obviously simpler in a 'shared freehold' where the individual owners collectively own the freehold or management company and can control the charge and sinking funds.

I've been in two such, where the occupiers set the charge at a level we thought necessary to cover both regular maintenance, but also programmed or one-off major works like roofing , guttering or the external decorations every 5-7 years (£14k last time as the 6-unit 19th Century block was very high, with lots to paint, and required extensive scaffolding). In that case, annual charges were about 30% higher than yours (£1,300 for our flat) but as they also had to cover insurances, landscaping, the private estate's roads, communal lighting, etc, only about 25% ended up in the sinking fund. But at least that meant we clocked up the £14k+ credit for the paint job, rather than face a one-off levy.

While 75% seems a bit steep- and assumes that in their three - four years of occupation, each home in the complex has already chipped in well over £2k (so how come there's only £2.7k in the collective pot?) at least, 20-50 years down the line, when major bits start to drop off, there should be no ugly bills. Which will be a real plus when it comes to selling in my experience. And even if most of the rest of your £1k p.a. goes on admin, that's not ruinous. We were looking at places recently with annual charges over £1.5k and it was difficult to see what that was being spent on, so we walked away. Our mates pay £3kpa which is barking mad.

But as I say, you can't do much about it as I assume your conveyancer explained the deal when you bought, with eyes open.