Sink Fund and Service Charges
Q: Having just reviewed the management agents service charge budget for the coming year, the freeholder is not contributing to the sink fund for the current 10 unsold apartments in the building. Is this correct? When the apartments are sold would the new leaseholder be expected to pay the missing contributions? The apartment block is only three years old but obviously the longer the apartments remain unsold the bigger the sink fund becomes.
FPRA Hon Consultant Shabnam Ali-Kahn replies:
The lease does allow the management company to charge for service charges with costs incurred and costs to be incurred. Therefore, there is provision for advance services charges and some sort of a reserve fund. However, the tenant is liable to pay their tenant proportion as outlined in the lease. Although there are rights for this to be varied it can only be varied as “it may be deemed appropriate” as outlined in Schedule 7 to the lease. One could argue being charged for unsold flats is not an “appropriate” reason.
Furthermore, the lease specifically outlines that the landlord must observe the lease covenants in relation to unsold flat. This means it is unreasonable and not allowed under the lease for this shortfall to be recovered from the other flats.
[Submitted July 2019]