Reserve funds.
In short
A block can only collect a reserve fund if its leases allow it. No law sets how much: the sensible amount comes from a plan of the major work the building will need, its likely cost and when. The money is service charge money, so it is held on trust for the leaseholders, and Section 20 consultation still applies to works paid for from it.
Can we collect a reserve fund?
Only if the leases provide for one, usually in a clause about a reserve or sinking fund towards future costs. If they do not, the company can only collect for the costs the lease allows, and should take advice before collecting anything for the future.
How much should we collect?
No law sets a figure. Start from a plan of the major items the building will need: the roof, windows, external decoration, a lift, the fire alarm, the drains. Put a likely cost and a year against each, then spread the contributions so the money is there when it is needed. Review it each year with the budget.
How must the money be held?
Service charge money, reserve included, is held on trust for the leaseholders under section 42 of the Landlord and Tenant Act 1987. Keep it in a bank account in the company's name used only for the service charge, separate from the company's own money, and account for it every year.
Does a reserve avoid Section 20 consultation?
No. Consultation depends on the cost of the works and each leaseholder's share of it, not on where the money comes from. Works paid from the reserve still need consultation if any one leaseholder's share is more than £250.
What happens to the reserve if the right to manage changes hands?
When an RTM company takes over, the uncommitted service charge money, which includes any reserve, must be paid over to it under section 94 of the Commonhold and Leasehold Reform Act 2002.
Where Servanda comes in
Servanda puts the reserve contribution in the budget and splits it between the flats by their lease shares like every other heading, matches each payment from the bank statement, and runs the Section 20 consultation when a big job comes.
Manage your own block or estateThe law
- Landlord and Tenant Act 1987, section 42
- Landlord and Tenant Act 1985, section 20
- Service Charges (Consultation Requirements) (England) Regulations 2003
- Commonhold and Leasehold Reform Act 2002, section 94 (accrued uncommitted service charges)
The legislation is the authority; this page is a plain summary for England, checked on 2026-11-02. Wales and Scotland have their own rules. Take advice on any particular building.