1% sinking fund and deed of variation

willows_10

We live in small complex of over 55 bungalows and 5 flats, our leases all mentioned the 1% sinking fund which would be payable only on  the sale of the property depending on how many years you have lived in that property. Our sinking fund now totals over £250k .
Imagine living somewhere for 30 years and when your family sells the house they have to pay back 1% per annum on a property of around £130k ,could be thousands.
We collectively had a solicitors do a deed of variation so we now don't have to pay the 1% on property sales, However we have now found out that new property owners ,four so far all have the 1% added back onto their deeds. Is this right ? Does a deed of variation only apply to the person's and not the property ?
We have a private management company who say if we need to replace a roof or wall we would need a sinking fund but from what we have read a sinking fund is paid along with the service charge not taken in a lump sum when the property is sold.
Also what happens to the interest on all that money  they have in their account? 

 

BarelySentientAI

That sounds like a pretty normal situation for many retirement properties - saves you having to pay thousands extra each year by taking it as a lump when you sell.

Bookworm105

willows_10 said:

Also what happens to the interest on all that money  they have in their account? 
 

read your lease 
probably part of the sinking fund itself and therefore contributing towards you not having to pay a service charge in cash each year.

eddddy

willows_10 said:

Imagine living somewhere for 30 years and when your family sells the house they have to pay back 1% per annum on a property of around £130k ,could be thousands.

Check the lease to see what that 1% is used for.

If it's a 'reputable' operator, as others say, the 1% is typically a deferred service charge (or deferred sink fund contribution).

i.e. Your service charge might be reduced by about £1000 a year for those 30 years, so you pay £39k when you sell to compensate.

(That might work well for retired people on a low fixed pension, who don't have much spare disposable income each month/year)


But some 'less reputable' operators just put the 1% in their own pockets - not into the sink fund. So that's not so good.

willows_10 said:

However we have now found out that new property owners ,four so far all have the 1% added back onto their deeds. Is this right ? Does a deed of variation only apply to the person's and not the property ?

You need to read the deed of variation to find out what it applies to.

It might say it applies to the person (i.e. the current leaseholder)

Or it might say it applies to the property (i.e. all future leaseholders)

willows_10 said:

We have a private management company who say if we need to replace a roof or wall we would need a sinking fund but from what we have read a sinking fund is paid along with the service charge not taken in a lump sum when the property is sold.

That's correct. With most leases you pay into the sink fund each year. But with your lease, you pay a lump sum when you sell. (That keeps your monthly/yearly bills lower.)

But if you prefer to 'pay' £1000 a year, you could put £1000 a year into your own savings account. Then hopefully that savings account will cover the lump sum when you sell.

willows_10 said:

Also what happens to the interest on all that money  they have in their account? 

Generally, it will be credited to the sink fund.

Hoenir

willows_10 said:

Also what happens to the interest on all that money  they have in their account? 

 

Inflation erodes the value of the money put by. Costs of repair/replacement ever increase. 

daveyjp

Its usual for retirement developments as many oensioners aren't cash rich.  Reducing annual occupancy charges is a selling point over private open market flats.  Knowing there is a substantial sinking fund also removes the fear that one day the letter arrives which states the property needs a new roof and all residents are required to pay a contribution running into thousands.

Very few residents will live in a retirement home for as long as 30 years, but its not unreasonable for property owners to pay for upkeep for their period of occupancy.  Some developments have extensive common areas and gardens which will need occasional capital investment, consider sinking fund a depreciation and capital expenditure fund.

Terms of the lease can be negotiated.  Some owners may be happy to pay ongoing sinking fund charges, some may prefer to pay a lump sum on the sale of the property.  One to raise with solicitors during the buying process.