Introduction

If you own a flat in the UK, you’ve probably come across the terms service charge, reserve fund, and sinking fund. They can sound like jargon, and many leaseholders wonder what the real differences are. In fact, these funds are closely linked, but each has its own purpose. In this blog, we’ll explain them in plain English, show where they overlap, and help you understand why they matter for the smooth running of your block.

What are reserve funds and service charges?

A reserve fund is like a savings pot set up for bigger, less frequent costs. This could be external redecorations, replacing carpets in communal areas, or major repair projects. Money is collected gradually so that leaseholders aren’t hit with huge one-off bills when big jobs come around.

The service charge is the money leaseholders pay to cover the day-to-day running costs of the building. This includes things like cleaning, gardening, insurance, lighting, and minor repairs. The lease sets out what can be charged, and landlords or management companies must keep it reasonable and transparent. In more complex blocks the service charge will cover plant items such as lifts, pumps, district heating systems and site staff too.

What is a sinking fund and how is it different than a reserve fund?

A sinking fund is very similar to a reserve fund, and in many blocks the terms are used interchangeably. Technically, though, a sinking fund often refers to a fund that builds up over a long time to cover the eventual replacement of major items – like lifts, roofs, or heating systems. Reserve funds, on the other hand, are sometimes more short-term, focused on upcoming projects. Pundits argue that a sinking fund is set aside specifically for its named purpose, e.g., lift replacement, and therefore must only be spent on that, whereas a reserve fund can be used more generally as needs arise. Sinking funds as terminology are more common in commercial lease drafting.

How do service charges, reserve funds, and sinking funds overlap?

All three are about making sure there’s money available to look after the building. Service charges deal with everyday costs, while reserve and sinking funds plan for the bigger stuff. The overlap comes because they all rely on contributions from leaseholders, and the lease decides what can and can’t be collected.

Why are reserve and sinking funds important for leaseholders?

Without these funds, leaseholders can face sudden and very large bills when big repairs are needed. By saving in advance, the costs are spread more fairly and predictably. They also give reassurance to buyers and mortgage lenders that the block is well-managed and financially stable.

How can leaseholders check how these funds are managed?

Leaseholders have the right to see service charge accounts every year, and these should clearly show what has gone into or out of any reserve or sinking fund. Good management companies or directors will also explain their plans in meetings or newsletters. If things aren’t clear, leaseholders can ask questions – transparency is key.

Service charges, reserve funds, and sinking funds might sound complicated, but they’re really just three ways of making sure a building has the money it needs. The service charge covers the everyday, the reserve fund helps with medium-term jobs, and the sinking fund plans for the really big-ticket items. Understanding the differences – and the overlaps – can help leaseholders feel more confident that their money is being managed wisely.

One of the biggest headaches for leaseholders running their own block is getting the service charge demands right. It’s not just a matter of sending a bill — demands must meet strict legal requirements under the Landlord and Tenant Act. Get it wrong, and payments can be withheld, delays mount up, and financial planning goes out the window.

That’s where ServiceChargeSorted.co.uk takes the pressure off.

The platform automates the entire process of creating and issuing compliant service charge demands, complete with the correct notices and supporting information required by law. You simply input your budget, and the system ensures that each leaseholder receives exactly what’s needed—on time, in the right format, and with full legal backing.

No more worrying about missing prescribed information, invalid demands, or dealing with disputes from leaseholders who’ve Googled the rules. ServiceChargeSorted.co.uk handles it all, so you can avoid costly mistakes and keep your block running smoothly.

Let the system do the hard work—so you don’t have to second guess yourself every time a demand goes out.