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    • claz83
    • By claz83 6th Apr 18, 11:48 AM
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    claz83
    Sinking fund introduced just before sale
    • #1
    • 6th Apr 18, 11:48 AM
    Sinking fund introduced just before sale 6th Apr 18 at 11:48 AM
    My landlord wrote to me yesterday to let me know he's introducing a sinking fund and needs payment ASAP. I'm just about to sell my flat (should be moving out at the end of next month). I'm not too sure how I should proceed given that I won't be living there for much longer. Would you advise paying it before my buyer moves in?
Page 1
    • G_M
    • By G_M 6th Apr 18, 12:28 PM
    • 44,697 Posts
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    G_M
    • #2
    • 6th Apr 18, 12:28 PM
    • #2
    • 6th Apr 18, 12:28 PM
    Well ideally you would be best not paying!

    But when your buyer asks your landlord if all payments are up to date, and is told this payment has not been made, he (buyer) is likely to insist you pay (or reduce his offer).

    How valid, thouhh, is the landlord's demand? Has it been made in the proper format?

    And is it permitted by your lease?
    • need an answer
    • By need an answer 6th Apr 18, 1:24 PM
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    need an answer
    • #3
    • 6th Apr 18, 1:24 PM
    • #3
    • 6th Apr 18, 1:24 PM
    How much are you being asked to pay?
    what period does the payment cover?
    Is it a retrospective payment that is being asked for or is it purely to cover work that is anticipated in the future.


    You may wish to contact the LL to come to an arrangement about how much you need to pay as this will be highlighted between your purchaser and their solicitor with yourselves going forward during the sale of your property.

    The positive going forward is that there will be a sinking fund in place and buyers are keen to see this.
    The negative for you is that you may be being asked to fund a sinking fund that you won't benefit from going forward but have had the benefit of the communal areas whilst living there.
    Last edited by need an answer; 06-04-2018 at 1:26 PM.
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    • eddddy
    • By eddddy 6th Apr 18, 1:44 PM
    • 6,595 Posts
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    eddddy
    • #4
    • 6th Apr 18, 1:44 PM
    • #4
    • 6th Apr 18, 1:44 PM
    Is it a retrospective payment that is being asked for or is it purely to cover work that is anticipated in the future.


    You may wish to contact the LL to come to an arrangement about how much you need to pay as this will be highlighted between your purchaser and their solicitor with yourselves going forward during the sale of your property.
    Originally posted by need an answer
    A sinking fund will be for future works.

    An LL almost certainly won't negotiate with each leaseholder about how much they put into the sinking fund. That would become a nightmare.


    @clas83 - if the lease allows the freeholder to collect a sinking fund, and the amount requested is 'reasonable', realistically you have to pay it.

    You can try negotiating an adjustment with your purchaser to reflect the sinking fund - but the purchaser might refuse.


    FWIW, many people think a sinking fund is fairer. For example:
    • A typical roof might need major repairs after 30 years.
    • If you've lived in the property for 3 years and paid into the sinking fund, you might have paid 10% of the share of the 30 year repair cost.
    • Maybe that's fairer than the person who happens to own the flat in 30 years time paying 100% of the share of the 30 year repair cost (even though they've only owned the flat for, say, 3 years).
    • need an answer
    • By need an answer 6th Apr 18, 2:01 PM
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    need an answer
    • #5
    • 6th Apr 18, 2:01 PM
    • #5
    • 6th Apr 18, 2:01 PM
    A sinking fund will be for future works.

    An LL almost certainly won't negotiate with each leaseholder about how much they put into the sinking fund. That would become a nightmare.


    @clas83 - if the lease allows the freeholder to collect a sinking fund, and the amount requested is 'reasonable', realistically you have to pay it.

    You can try negotiating an adjustment with your purchaser to reflect the sinking fund - but the purchaser might refuse.


    FWIW, many people think a sinking fund is fairer. For example:
    • A typical roof might need major repairs after 30 years.
    • If you've lived in the property for 3 years and paid into the sinking fund, you might have paid 10% of the share of the 30 year repair cost.
    • Maybe that's fairer than the person who happens to own the flat in 30 years time paying 100% of the share of the 30 year repair cost (even though they've only owned the flat for, say, 3 years).
    Originally posted by eddddy
    Thank you I am aware what a sinking fund is.

    I perhaps did not express myself in the best way with my response regarding retrospective work.

    The point I was trying to make is that the sinking fund could be being set up because there is known areas of the complex or property that will require work going forward.
    Probably more common when the development ages a little but many managing agents/companies do not invest in a sinking fund when the properties are new but introduce them some years down the line in order to begin to plan for large ticket replacements.

    I'm still not sure I have explained well but the whole situation of a sinking fund is better managed and distributed when set up at the beginning rather than some years later.

    The OP quite rightly may not want to contribute to work or defects that will happen long after they have moved out but as with your example of the roof would be better looking at it that they benefitted from the use of the roof whilst living there and as such is paying a % of future repair costs based on the time they lived there


    The fact that the OP says the LL has contacted them to advise that a sinking fund is being set up and they require an immediate payment may suggest that the work required whist is in the future is retrospective in as much as there is potentially areas that previously didn't require maintaining but are soon to become problematic.

    That is also why I asked how much was being asked for,again the assumption being that if a sinking fund was now being set up unless there was something that will require attention shortly then it would be incorporated in general management charge inflation for this year.

    Of course the other option would be to issue all leaseholder with a section 20 if there was a specific item of work that required action above and beyond an individual 250 contribution.
    Last edited by need an answer; 06-04-2018 at 2:18 PM.
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    • steampowered
    • By steampowered 6th Apr 18, 2:53 PM
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    steampowered
    • #6
    • 6th Apr 18, 2:53 PM
    • #6
    • 6th Apr 18, 2:53 PM
    Normally a sinking fund would be built up over time, not with big lump payments.

    Payments like this would normally be made on an annual basis, and then allocated between the buyer and the seller depending on the % of the year during which each was occupying the property.
    • need an answer
    • By need an answer 6th Apr 18, 3:00 PM
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    need an answer
    • #7
    • 6th Apr 18, 3:00 PM
    • #7
    • 6th Apr 18, 3:00 PM
    Normally a sinking fund would be built up over time, not with big lump payments.

    Payments like this would normally be made on an annual basis, and then allocated between the buyer and the seller depending on the % of the year during which each was occupying the property.
    Originally posted by steampowered
    Which is what is making me wonder if the LL has become aware of large ticket items that might be requiring attention.

    A sinking fund doesn't come out of nowhere.

    OP you may find that during the process of selling the property any purchasers solicitors will enquire as to major works planned and indeed the ability of the management company to fund any work.
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    • claz83
    • By claz83 6th Apr 18, 3:04 PM
    • 20 Posts
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    claz83
    • #8
    • 6th Apr 18, 3:04 PM
    • #8
    • 6th Apr 18, 3:04 PM
    Which is what is making me wonder if the LL has become aware of large ticket items that might be requiring attention.

    A sinking fund doesn't come out of nowhere.

    OP you may find that during the process of selling the property any purchasers solicitors will enquire as to major works planned and indeed the ability of the management company to fund any work.
    Originally posted by need an answer
    Yes that is what's happened - he says he's conscious the fences and parking area need updating. Although I won't benefit from these future improvements I'm thinking it would show good will to just pay regardless. He's asked for 250.
    • need an answer
    • By need an answer 6th Apr 18, 3:12 PM
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    need an answer
    • #9
    • 6th Apr 18, 3:12 PM
    • #9
    • 6th Apr 18, 3:12 PM
    Yes that is what's happened - he says he's conscious the fences and parking area need updating. Although I won't benefit from these future improvements I'm thinking it would show good will to just pay regardless. He's asked for 250.
    Originally posted by claz83
    So it would seem that the sinking fund is now being set up not to fund forward issues but to potentially upgrade things that have slipped over the years.

    Its interesting that he has asked for 250 presumably from each leaseholder as anything above that would certainly require a section 20 being issued for communal repairs/upgrades.
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    • G_M
    • By G_M 6th Apr 18, 3:16 PM
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    G_M
    ...... He's asked for 250.
    Originally posted by claz83


    Just pay it. It's trivial.
    • claz83
    • By claz83 6th Apr 18, 3:21 PM
    • 20 Posts
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    claz83


    Just pay it. It's trivial.
    Originally posted by G_M
    There's also 202.87 towards the insurance which runs from 1st April 2018...
    • need an answer
    • By need an answer 6th Apr 18, 3:21 PM
    • 775 Posts
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    need an answer


    Just pay it. It's trivial.
    Originally posted by G_M

    I'm in agreement.

    I was expecting the OP to start quoting much higher figures.

    OP 250 may sound a lot in one hit for you but if you were staying and 250 were added to your service charge/management costs annually then it would only bump them up by 20 per month.

    Certainly not a reason to stop you from selling or indeed something that should put any potential purchaser off
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    • cashbackproblems
    • By cashbackproblems 6th Apr 18, 4:54 PM
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    cashbackproblems
    sinking funds are usually part of a service charge (but kept in a different fund) which is your LL responsibility. Seems like he is trying to palm this off on your due it not being called a service charge. In my leasehold property I pay a service charge and sinking fund each quarter, the sinking fund just means it wont be spent on maintance
    • InterestedParty2018
    • By InterestedParty2018 6th Apr 18, 5:10 PM
    • 83 Posts
    • 49 Thanks
    InterestedParty2018
    If the lease permits the Freeholder/landlord to collect a reserve/sinking fund, and the invoice/demand has been raised correctly, then it must be paid by the specified due date.

    If the landlord is aiming to collect 250 annually from you for the foreseeable future works, you may want to ask you conveyancing solicitor if this sum can be apportioned, as is done with service charges which are paid in advance. No guarantees, but worth an ask.

    Any buildings insurance premium paid for in advance *should* be apportioned within the completion statement so that you end up only paying for the period of your ownership, and the buyer/new owner pays for their period of ownership.
    Last edited by InterestedParty2018; 06-04-2018 at 5:12 PM.
    • G_M
    • By G_M 6th Apr 18, 7:01 PM
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    G_M
    I'm in agreement.

    I was expecting the OP to start quoting much higher figures.
    Originally posted by need an answer
    I had in mind that the OP was being asked to pay 2,500+.

    There's also 202.87 towards the insurance which runs from 1st April 2018...
    It is standard practice for this to be apportioned. Your solicitor will do this. Divide the 202.87 by 365 days (0.55). Then multiply by the numer of days betwen 1st April and the Completion date; you are responsible for this, and the balance is added to the total the buyer pays you.
    • AnotherJoe
    • By AnotherJoe 6th Apr 18, 8:05 PM
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    AnotherJoe
    • cjmillsnun
    • By cjmillsnun 6th Apr 18, 10:11 PM
    • 602 Posts
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    cjmillsnun
    AnotherJoe Agreed.
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    • claz83
    • By claz83 12th Apr 18, 4:11 PM
    • 20 Posts
    • 6 Thanks
    claz83
    I had in mind that the OP was being asked to pay 2,500+.

    It is standard practice for this to be apportioned. Your solicitor will do this. Divide the 202.87 by 365 days (0.55). Then multiply by the numer of days betwen 1st April and the Completion date; you are responsible for this, and the balance is added to the total the buyer pays you.
    Originally posted by G_M
    Thanks so much both, my solicitor has confirmed this is exactly what will happen. And we'll be reimbursed some of the insurance
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