Reserve funds and their importance are another area often misunderstood by leaseholders.
Here we answer some of the Frequently Asked Questions we receive:
Q – What is a reserve fund?
A – A reserve fund is a pot of money that is collected over time (usually as part of your service charges). This money is set aside to cover major works and cyclical maintenance (e.g. the larger jobs that need doing every 3-10 years, such as exterior painting, lift refurbishment etc.) Your lease will specify exactly what is covered and over what time period.
Q – Will I earn interest on the money I pay towards a reserve fund?
A – Yes. If the terms of your lease provide for the collection of a reserve fund, then that money will be held in a dedicated (and protected) client account until it is needed. If there is interest payable on that amount, that will go directly and equally to leaseholders. Please note, service charges also receive interest. All interest earned on reserve funds or service charges is taxable as Trust Tax.
Q – How do you ring-fence reserve fund monies so they’re not spent on the wrong client or project?
A – We hold all service charge and reserve fund monies in dedicated client accounts, in line with Section 42 of the Landlord & Tenant Act 1987. Reserve funds are ring-fenced separately from service charges and interest goes directly to leaseholders.
For further information, please call our team on 01603 226500 or email: management@watsons-property.co.uk
