Q&As

What can the tenant of a residential lease, which requires the landlord to set up a sinking fund/reserve fund, do if the landlord fails to use service charge payments from the tenants to build up the fund, but instead asks the tenants for large payments upfront for repair/decoration to external parts of the building?

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Published on LexisPSL on 30/06/2016

The following Property Disputes Q&A provides comprehensive and up to date legal information covering:

  • What can the tenant of a residential lease, which requires the landlord to set up a sinking fund/reserve fund, do if the landlord fails to use service charge payments from the tenants to build up the fund, but instead asks the tenants for large payments upfront for repair/decoration to external parts of the building?
  • Can the landlord establish a sinking/reserve fund?
  • What if the landlord does not apply service charge payments to the fund?
  • What other protections exist?
  • What statutory protections exist?

What can the tenant of a residential lease, which requires the landlord to set up a sinking fund/reserve fund, do if the landlord fails to use service charge payments from the tenants to build up the fund, but instead asks the tenants for large payments upfront for repair/decoration to external parts of the building?

Can the landlord establish a sinking/reserve fund?

The issue with sinking funds is more usually whether a landlord is entitled to set one up/demand payments from the tenants.

Therefore, in the first instance, it is usually necessary to determine as a matter of law whether the landlord, on the construction of the lease, is entitled to establish a reserve fund or sinking fund. These are subject to the Landlord and Tenant Act 1985 (LTA 1985) and the Landlord and Tenant Act 1987 (LTA 1987). For further information, see Sinking and Reserve Funds: Butterworths Property Law Service [796].

It was confirmed in the case you referenced, Universities Superannuation Scheme Ltd v Marks & Spencer plc [1999] 1 EGLR 13, that unless the lease clearly states otherwise, a landlord cannot demand advance payments for a sinking or reserve fund. For further information, see Practice Note: Commercial service charges—what expenses can the landlord recover?.

See Advance service charges and sinking funds: Hill and Redman's Law of Landlord and Tenant [3822].

'The landlord will not be able to demand advance

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