Sinking fund
A sinking fund, which is also called a reserve fund, is money set aside to pay for large, infrequent works to a building, such as external redecorations, replacing a roof, or renewing a lift. In leasehold blocks, it is typically built up through regular contributions collected via service charge from leaseholders, rather than as a one-off bill when major works arise.
From a landlord perspective there are two common contexts:
1) You are the freeholder/superior landlord of a block.
If the leases allow it, you, or your managing agent, can collect sinking fund contributions as part of the service charge. The aim is to smooth cashflow, reduce the shock of big bills, and keep the building in good order. However, you must administer the fund properly and transparently. Government guidance notes there are rules about how landlords must manage these funds, and that leaseholders usually cannot reclaim contributions if they sell.
2) You are a landlord who lets out a leasehold flat.
Your tenant doesn’t usually pay into the sinking fund directly, but the costs can still affect your rental business because they flow through your service charge budget and can influence your pricing, rent reviews and long-term return. If essential works are delayed, it can spill into repairs problems inside the flat, for example, a roof leak causing damp and mould, and trigger housing disputes.
Two practical points. First, sinking funds don’t provide a blank cheque. The leaseholders can challenge the reasonableness of service charges at the First-tier Tribunal (Property Chamber), and disputes often focus on whether contributions are justified and properly estimated. Second, where major works are planned, you may still need to follow Section 20 consultation rules, separate from the sinking fund itself, before recovering certain costs.
Finally, while the Renters’ Rights Act mainly reforms private renting rather than leasehold accounting, higher expectations around property condition and new redress routes, mean block maintenance and funding decisions can more quickly become tenant-facing issues. Keeping sinking fund plans clear and works timely is increasingly part of staying compliant.
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