Guide · Running your block

Reserve funds and sinking funds for blocks of flats

How a reserve or sinking fund works for a block of flats: when the lease allows one, how much to collect, how to hold it as trust money, and spending it.

Last reviewed 22 October 2026 by Phil, founder2 min readPlain text (Markdown)

The short answer

A reserve fund (often called a sinking fund) is money collected from leaseholders in advance to spread the cost of big future expenses, such as a new roof or redecoration. You can only collect one if the lease allows it. The money is held on trust for the leaseholders, should be kept in its own bank account, isn't refunded each year, and should be spent only on the purposes it was collected for.

Key facts

You can only collect a reserve if the lease allows it.
Reserve contributions are trust money (s.42 LTA 1987): keep them separate from company money.
There's no legal minimum; base contributions on a planned maintenance schedule.
Section 20 consultation still applies to works paid for from the reserve.
If management changes, the reserve passes to the new manager.

Does your lease allow one?

Look in the service-charge schedule for words like "reserve", "sinking fund", "provision for future expenditure" or "such sums as the Landlord considers appropriate towards anticipated expenditure". If there's nothing like that, you can't collect in advance for future works. You'd have to budget for each big job in the year it happens, or agree to vary the leases.

How much to collect

Make a planned maintenance schedule: the big items, when each is likely to be needed, and a rough cost. Then spread each cost over the years until it's due:

yearly contribution = (estimated cost when due − amount already saved for it) ÷ years until it's due

Add the contributions up for the reserve line of the budget. Review the schedule every year, and when you get real quotes.

The Maple Court example

Item	Due in	Estimated cost	Saved so far	Contribution a year
External redecoration	6 years	£9,000	£3,000	£1,000
Roof covering	15 years	£18,000	£3,000	£1,000
Fire alarm panel	4 years	£1,600	£0	£400
Total				£2,400

That's the £2,400 reserve line in the Maple Court budget, or £300 a year for each flat at 12.5%.

Holding the money

It's trust money. Service-charge contributions, including the reserve, are held on trust for the leaseholders (s.42 LTA 1987).
Keep it separate. Use a bank account in the company's name for the reserve (or for all service-charge money), never mixed with company income or anyone's personal money.
Interest belongs to the fund. Trust interest above £500 in a tax year may need reporting to HMRC. Ask an accountant.
Show it in the accounts. The service-charge accounts should show the reserve balance, what was added and what was spent.

Spending it

Use it only for what the lease allows it to be collected for.
Record a directors' decision each time, with the reason.
Large works still need Section 20 consultation, even if the money is already in the reserve.
Tell leaseholders what was spent and what's left.

When things change

Sale of a flat: the fund stays with the building. The seller doesn't get their contributions back.
New management: on an RTM takeover, the reserve is part of the money the old manager must hand over (s.94).
Future law: the government has consulted on mandatory reserve funds, with a possible exemption for very small leaseholder-run blocks. Nothing has been decided.

This is general information, not legal advice. Every building and lease is different. For free initial advice, contact LEASE (The Leasehold Advisory Service): https://www.lease-advice.org/

Questions people ask

How much should be in a sinking fund for a block of flats?

There's no fixed legal amount. The sensible figure comes from a planned maintenance schedule: list the big jobs you expect, when and roughly what each will cost, and spread each cost over the years until it's due. Review it every year.

Do we get the sinking fund back when we sell?

Usually not. The reserve belongs with the building, held on trust for the leaseholders as a group. When a flat is sold, the buyer takes the seller's place, and the fund stays put.

Can the reserve be used for anything the directors choose?

No. It can only be used for the purposes the lease allows it to be collected for. Record a directors' decision each time you use it, and tell leaseholders.

Is it compulsory to have a reserve fund?

Not under current law. The government has consulted on making reserve funds mandatory, but hasn't decided.