Grange Explains: Reserve Funds
What is a Reserve Fund?
A reserve fund is 'a sum of money collected from residents as part of their service charge to meet expenditure…in future'.
This means that all occupiers, regardless of when they moved in to the residential property, contribute towards expected and unexpected expenses not usually covered by the day to day service charge.
This contribution is held in a reserve fund, which builds up over time.
Think of your service charges as day-to-day expenses, and the reserve fund as savings to be used as and when needed.
What are Reserve Fund monies used for?
Reserve fund monies are usually used to pay for planned expenditure, such as cyclical maintenance, i.e. external or internal redecorations, or replacement of communal carpet etc.
However, sometimes things happen outside of our control. In these instances, reserve fund monies can be used for unplanned expenditure, i.e. roof or lift repairs, fire alarm or door entry systems etc., anything that the normal service charge cannot cover.
Should monies taken from the reserve fund equate to more than £250 per resident, legislation requires us, as the property managers, to enter into the Section 20 process with residents.
This is a legal process that requires consultation with residents, allowing residents to see how the reserve fund monies are spent on a specific project and have input into the contractors used.
Where are Reserve Fund monies held?
The reserve fund monies are 'held in trust' in a dedicated scheme bank account.
Only residents living at the property benefit from the fund, and from any associated interest accrued.
What are the Benefits of a Reserve Fund?
A reserve fund protects residents from potentially costly bills and spreads the cost of non-annual expenditure over a number of years.
A healthy reserve fund can help maintain the value of your property and can help make sales negotiations speedier.