Q. I am close to exchange of contracts on my first property and have had a nasty shock from my solicitor, the service charge is actually £700.00 more per annum than I was originally told it would be at the onset of the purchase. Apparently each owner contributes this extra £700.00 towards the sinking fund?! What is the sinking fund for and should the seller not of disclosed this at the beginning of the sale?

A. The seller should absolutely have been transparent about this charge, In fact the sinking fund is generally included in the service charges and not something that is usually charged for separately although it would appear on the service charge statement as an itemised charge. In fact I believe it was likely included in the service charge demand but it appears the seller may have separated this to avoid the service charges looking too expensive! Given this failure to disclose the cost I would definitely suggest you go back to your seller and ask for a price reduction on the property to cover the cost of this or at least meet you halfway on the charge.

A sinking fund or ‘Reserve Fund’ as it is sometimes referred to is a pot of money which builds up over time to cover the cost of major works. This means that if major work is carried out the financial outlay to each leaseholder is lessened and sometimes completely covered by the sinking fund. The amount that you pay will be included in your service charge and the proportion of the contribution will be detailed in your lease.

The sinking fund is estimated using the knowledge of a Quantity surveyor and also the builder who originally built the property looking at the cost to replace items such as fences, flooring, lifts etc. over a period of time. This helps to forecast how much they need to spend on replacing items in the future and estimates how much they need to collect over time.

If at some point in the future you decide to sell your property the money paid into the sinking fund will remain there intact and your purchaser will inherit the benefits of the fund.