My Development Doesn’t Have a Reserve Fund, Should I Be Worried?

Louisa Myatt, Director at Neil Douglas gives some insight into why reserve funds are important.

No leaseholder wants to be presented with an unexpected bill for several thousand pounds because the roof suddenly needs fixing or external decorations are required. If your development doesn’t have a reserve fund you should be worried. Financial planning is one of the most important aspects of our work as property managers.

Saving into reserves, alongside your contributions to the annual costs of the development, ensures that the funds are there when the work is required.

How do we know how much to save into reserves? Reserves aren’t just about saving for a rainy day they should be designated for a purpose, whether that be for a major redecoration, the replacement of carpets or resurfacing of a car park.

Our approach is to create a long-term maintenance plan, which list the expected items of future expenditure and their estimated costs. This allows us to forecast how much we need to save into the reserves each year to pay for the work. We share this with leaseholders so there is full transparency in how the reserve contributions are calculated.

Saving into reserves gives leaseholders peace of mind that their development is in a sound financial position and helps their own personal financial planning. Like all service charge funds, reserve funds are held on trust in a dedicated client bank account for the development.

Some older leases don’t make provision for collecting reserves. Where this is the case, we recommend a lease variation to correct this problem.

When a flat is being sold the conveyancers will ask us about the reserves for the development and if any major works are planned. An adequate reserve fund is a way to reassure prospective buyers that they are investing in the right property and helps ensure that the sale goes through without any problems.

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