Sinking Fund Query

dt1710

Hi, we are in the process of selling our 2 bedroom flat and hoped you could help us with a question about sinking funds.

Our flat is in a purpose-built development of 9 flats (originally 8 with 1 added a few years ago) built in 2009 in South-East London. We purchased in 2018 aware that there was no sinking fund but happy with that on the basis that the property was still under the NHBC warranty and that we did not plan on staying here for that long so the chances of any major works being required was very low. Additionally, we know that the lease contained a clause that reserves the right to set aside a separate fund, although this has never been enforced.

Until this year, the freeholder has effectively been the management company and we've been very satisfied with this arrangement. The service charge has always covered any required maintenance (internal decorations, communal garden maintenance, door repairs, etc.). This year, the freeholder has moved the management of the property to a dedicated management company but the service charge is the same (a little lower actually) and they have agreed not to establish a sinking fund this year (no major works expected in the near future, don't want to lump a big charge on the leaseholders in the 1st year, etc.) but are considering doing so.

The issue we have is that our buyer has pulled out of a previous sale because of concerns with the management company and the lack of a sinking fund (much older building, only 4 flats, management company was a mess) and are concerned that they may pull out of our purchase, although we hope they see that this is a completely different situation (relatively new building, good freeholder, etc.). Additionally, there are no lifts or communal services (gyms, pools, etc.) so I would think that the potential for major works could be lower compared to some developments although I appreciate this is difficult to assess.

In order to keep the sale going (we had to wait over a year for our buyer and do not want to lose them!), we are considering making an offer to contribute a sum to in effect make up for the lack of sinking fund contributions whilst we have lived here, however; we have no idea what a "normal" sinking fund contribution looks like and how much would be a reasonable offer. We don't feel we should contribute for the entire 13 years that the property has been built given that the 1st 10 years were under warranty and the flat was not owned by us but we are happy to contribute for the time that we have owned the flat. We hope that this then puts our buyer in the "right" position and they can then continue to save their own sinking fund in case of any future works and maintain the benefits of manging this fund themselves or contribute to a central sinking fund if one is established in the future.

To summarise, our question is: how much do you pay into a sinking fund each year (13 year old, purpose-built development of 9 flats with no lift) and what would be reasonable to expect to be in the sinking fund after 13 years?

Many thanks in advance!

eddddy

dt1710 said:

The issue we have is that our buyer has pulled out of a previous sale because of concerns with the management company and the lack of a sinking fund (

It seems strange to pull out of a purchase simply because there was no sinking fund.

But it might be more understandable if, for example, the following happened:

• The buyers found out during conveyancing that expensive major works were planned/required in the next year or two 
• AND there was no sinking fund to pay for the major works
• AND the sellers refused to accept a lower offer to cover some/all of the cost of the major works

Sinking fund contributions should be justified - i.e. linked to expected future expenditure - maybe like repainting the outside, repainting the communal areas, refurbishing the roof etc.


Maybe ask your management company for a list of 'non-regular' works planned for the next 2, 3 or 4 years.

If, for example, it looks like your buyer will have to contribute, say £3k towards those works over the next 4 years, you can decide how much of the £3k you should offer as a discount your buyer.