What is a reserve fund and how can my landlord charge me for it?

Most residential leases contain an “emergency cash fund” or provision that allows a management company or landlord to seek additional money from the leaseholders for future major works, such as redecoration, property repairs and maintenance on common parts of the building.

However, it’s not all doom and gloom when faced with paying additional costs towards renting a property. The “reserve fund” was established to protect landlords when it comes to meeting recurring expenditure whilst evening out the annual service costs. It also protects tenants against having to pay significant sums toward any maintenance work required on the rental property.

How does a reserve fund work?

The reserve fund is built up over a year or two, to an amount that could potentially cover any unexpected shortfalls related to maintaining the property. The amount of money paid towards the reserve fund generally depends on the landlord and the property type and size.

How do I know if I will be charged a service fee?

Some leases will clearly state how much you need to contribute toward the reserve fund each year and during your agreed rental period. However, if you are unsure about the charge, you will need to consult the “service charge” provision section in your lease agreement. It is also good practice to check your lease agreement whether your landlord is in fact permitted to set up a reserve fund for the property.

If you are required to contribute towards a reserve fund, the landlord is obliged to set up and maintain the fund in accordance of the terms of the lease. However, if there is no mention of a reserve fund in your lease, check that the wording in the service charge clause confers a right for the landlord to make such a charge towards property expenditure.

For help with interpreting your lease agreement or resolving a service charge dispute, talk to a property management expert or seek advice from a solicitor.

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