Glossary · UK
What is Sinking Fund?
A reserve of money set aside over time to pay for known future large costs, commonly used for building repairs in leasehold property.
Full Definition
A sinking fund is a pot of money built up gradually so that a large, predictable future expense can be met without a sudden lump-sum demand. In UK leasehold property it is the most common context: the freeholder or managing agent collects regular contributions from leaseholders, in addition to ordinary service charges, to fund major works such as roof replacement, lift refurbishment or external decoration. Whether a sinking fund (sometimes called a reserve fund) can be charged depends on the terms of your lease. Contributions are usually held on trust and cannot generally be reclaimed when you sell, so the buyer benefits from the balance built up. Businesses and individuals also use the concept to save steadily toward replacing equipment, a car or a boiler. The advantage is smoothing cost over time and earning interest while funds accumulate; the risk is that an underfunded sinking fund leaves you facing a large one-off bill. Always check the lease and recent accounts before buying.