Can residential service charge sinking funds be invested?

Can residential service charge sinking funds be invested?

Acting as a managing agent for many residential blocks, we’re well attuned to sinking funds and managing cost expectations for our clients. However, on occasions, we get asked about why and how can we make the most of the money in the sinking fund pot?

You can read about why sinking funds are important here, but for now – here is the low-down on can your residential service charge sinking funds be invested?

The answer from our perspective as managing agent is unfortunately no (unless you want to personally take on board the high risks associated!). As RICS registered Chartered Surveyors, we have to comply with RICS’ rules and regulations. When faced with this question by our clients, we wanted to get clarification on what would be approved or not as the case may be.

In response to our query the RICS summarised that whilst there is no legal requirement to stop management companies taking the sinking fund on themselves and investing the money into another high interest account, or bond – the management company (or persons) would no longer be protected by the RICS Client Money Protection Scheme and our Professional Indemnity Insurance as the funds are out of our control.

There is nothing to stop Directors of the management company take control of the money directly, BUT, they would need to all have independent financial advice, there would need to be written agreements as to how to manage the money and finally; all risk and responsibility would lie with themselves as the investment market can fluctuate. So there is possible yes answer to the question, but not without stress and financial risk.

Sinking funds are generally overseen by the managing agent (like David Charles), by doing so, it takes away the risk from the Lessee’s and allows us to effectively manage budgets. When sinking funds are done well, owners or properties should not have to pay out large sums of cash when things go wrong only when planned maintenance is required. There should be a gradual flow of money into the account to allow for future.

So, whilst you might like the sound of being able to invest your sinking funds into an alternative high yielding investment – unfortunately unless rules change, it’s best to keep it where it is and think about other ways to make interest on your hard-earned cash!

If you have any questions about your sinking fund or are looking to change your block managing agent, call us today on 020 8866 0001.