A sinking fund is the name given to a long term savings account that homeowners contribute to every month through service charges. This builds up every year and should pay for any major works that are required over a period of time, such as the painting of communal areas or replacement of a roof or windows.
Why have sinking funds?
If a sinking fund is not set up, payment for any required works are due from a homeowner on completion of the works. This can mean that homeowners will receive large bills that they need to pay on demand. A sinking fund should mean that no additional payments are due when major works are required.
What do sinking funds cover?
As regards the fundamental items that should be considered as part of the sinking fund calculations, it is difficult to be precise or definitive on the key elements required. This is largely because factors such as the surveyors views, building age and condition, usage, location, type of materials used will vary significantly from development to development. Amongst some of the most common areas a sinking fund may cover are refurbishments or replacement of: Building structure; Windows and walls; Roof and roof finishes; Internal partitions; Floor structure; Internal and External Decoration; Plumbing and Water services; Heating and Ventilating; Lifts and Escalators; Mechanical and Electrical Services and infrastructure.
How do you work out how much I have to pay towards the sinking fund?
When the property is built the builder will provide Hyde with a cost list of all component parts of the building (such as windows, roof, lifts, pumps, fire safety systems etc.) and approximate life expectancies for these. From this information Hyde can work out how much is needed from each property to pay for the works when required. This information should then be placed into Hyde’s system so that reminders are provided when works are expected. Other factors such as independent condition surveys, works to similar properties and inflation are also taken into account.
What if no works are required?
No works are started until a qualified surveyor has inspected the property and assessed the condition. If it is deemed no works are required a reassessment will be scheduled for the following year. Alternatively, if a component such as a pump fails and is beyond repair this will be replaced when required.
Will I be consulted about any works that are required?
Yes, Hyde is obliged to consult with you for any single item of works that will cost more than £250 per property. This will be in the form of letters that meet legal requirements. If you have any comments, wish to nominate a contractor or have a query with the costs or works you should contact Hyde as soon as you receive your consultation letter. Further information about consultation legislation can be found at The Leasehold Advisory Service. (This is a free Government-funded service that provides independent advice to homeowners)
What happens if there is not enough money in the sinking fund to pay for the works?
Hyde try to avoid this scenario where possible, however unexpected works do occur. You will receive formal confirmation of the final amount of works and any likely shortfall. Hyde will pay for the contractors bill, make the contributions due for tenants, deduct the sinking fund and any amount still left will be payable by homeowners. Payment options are available depending on the amount owing.
Who looks after my sinking funds contributions?
All contributions are held by Hyde in a central bank account and accounted for separately. Interest is earned on the monies that are held and is added to the sinking fund balance every year.
I live in a mixed block of flats; do I pay for the tenant’s works through my sinking fund?
No, you only pay for your contribution due. If you live in a block containing 10 flats, five of which are owned and five tenanted each homeowner will pay a contribution based on the apportionment set out in your lease i.e. if unit based apportionment you will contribute 1/10th of the cost of the works. Hyde would pay 1/10th for each of the tenants as a contribution. This is paid for through the tenants rent.
Can I take my sinking fund contributions with me when I move?
No, the contributions that you make will remain in the account and be used when works are required. You may wish to make an informal arrangement with your buyer to take this into account. A buyer’s solicitor will always write to Hyde and enquire about the sinking fund balance. From experience a sinking fund will improve the sale ability of a property as the major works burden on the buyer is reduced.
What do I do if I think the sinking fund contributions are too high?
If you want clarification of what you are paying you can get this from Hyde’s Home Ownership Team. This includes items covered, life expectancy or the balance in the account. If you are still not satisfied you will need to provide reasons why you think the charge is too high that are supported by evidence. Hyde may commission an independent survey report to review the charges that is supported by your evidence. The result of the report will be binding on both sides, this could mean that the sinking fund contributions decrease or increase depending on the report findings.
What if I do not pay into a sinking fund?
All new build properties have a sinking fund set up as a matter of course. Older properties, particularly those transferred as part of stock transfers from local authorities do not normally have a sinking fund. This means that no monies have been put aside by homeowners for works that will be required and full payment will be invoiced once works have been completed. Full consultation on the works will be carried out and payment options will be available after the final bill is known.
Can I start a sinking fund at our property?
Yes, if everybody is agreeable in the building Hyde will work with you to agree suitable contributions and remaining life expectancies on parts of the building that will require work in the future.