Question 1

Sinking Funds

Accepted Answer

Q: We have read recently about sinking funds. We wonder whether our lease enables us to create one? We may need to save for a long-term project of replacing our block of garages, and wonder whether we could do this by having a sinking fund. If we had a sinking fund, if someone sold their property, would they be entitled to a refund of payments made into the fund? Stuart Merrison, Bishop & Sewell, replies: The lease does not make explicit provision for a sinking fund. The fourth schedule is fairly restrictive in what the landlord can recover and does not make explicit provision for significant future costs on account. It is unlikely that a court would interpret this as provision for a sinking fund. If that analysis is right, then a fund could be set up by agreement of the leaseholders, or an application made to the First Tier Tribunal to vary the leases as required. A sinking fund clause in a lease may well deal with repayment issues, but it is more general for this to be dealt with in the sale price of a leasehold property or by allowance/retention of funds on sale [Submitted July 2016]

Question 2

Sinking Funds

Accepted Answer

Q: We have read recently about sinking funds. We wonder whether our lease enables us to create one? We may need to save for a long-term project of replacing our block of garages, and wonder whether we could do this by having a sinking fund. If we had a sinking fund, if someone sold their property, would they be entitled to a refund of payments made into the fund? Stuart Merrison, Bishop & Sewell, replies: The lease does not make explicit provision for a sinking fund. The fourth schedule is fairly restrictive in what the landlord can recover and does not make explicit provision for significant future costs on account. It is unlikely that a court would interpret this as provision for a sinking fund. If that analysis is right, then a fund could be set up by agreement of the leaseholders, or an application made to the First Tier Tribunal to vary the leases as required. A sinking fund clause in a lease may well deal with repayment issues, but it is more general for this to be dealt with in the sale price of a leasehold property or by allowance/retention of funds on sale [Submitted July 2016]

Sinking Funds

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