The importance of reserve funds

Reserve funds are important for leaseholders and there are many reasons why. Reserve funds are amounts of money that are collected over time, often as a service charge. The money goes towards paying maintenance fees, such as paintwork and long-term jobs on the property. Read on for more information on reserve funds.

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Interest is earned

Reserve funds can earn you interest if this is stipulated in your lease. The money will be taken care of and held in an account until it is needed for maintenance issues. Any interest should be paid to leaseholders directly, but remember, this is open to tax.

Money should be fenced away so it is only spent on legitimate issues for that leaseholder. For this reason it should be held in special accounts for each client with the interest clearly defined and able to be sent directly to the leaseholder.

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A liquid asset

The reserve fund is a liquid asset to meet any future costs and this is something common to most block and estate management companies. The idea is to deposit funds on a regular basis so that the amount increases steadily and can accrue sizeable interest. This will increase the reserve fund’s value even when it is not in use. Interest can be paid to leaseholders regularly.

If leaseholders are unsure how this works with their own Block and Estate Management company, they should ask their company to explain the process and how the money will be used. It is also important to ensure leaseholders know how and when they will receive interest payments.

Immediate repairs and maintenance

Reserve funds can be good news for leaseholders because this means repairs and maintenance can be carried out immediately. Many councils explain how reserve funds can be used, which is useful for leaseholders to explore so they understand their purpose, and here’s an example.

If a good reserve fund is held on standby, there is never the need to wait for repairs and work can begin straight away to secure, protect and repair the building. If the reserve fund is not enough or someone has missed a payment, this can damage the fund’s ability to meet the needs of the property. In terms of a block of apartments, this is ideal for helping with plumbing, electrical works and roofing issues that affect the communal areas.

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