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Last updated: 26 April 2026
For directors · Service charges

Reserve fund. How much to hold, and how to know you're right.

A reserve fund is the standing pot that funds the building's major works over decades. Too little and the next roof replacement is a balancing levy. Too much and you are over-demanding service charges year after year. A Reserve Fund Plan from a RICS surveyor sets the target properly.

Trust & governance
Under Section 42 LTA 1987, reserve fund money is held on trust for leaseholders in a designated account. The lease determines what the fund can be spent on. Misapplying reserve monies is a breach of trust, actionable by leaseholders. In context: But the fix is process not panic: a Reserve Fund Plan from a RICS surveyor (£500-£2,000) sets the right contribution rate for your building.
What this means Your situation Price Suppliers Draft email Funding FAQ
What this actually means

The reserve is the difference between smooth and traumatic major works.

Without a reserve, every major cost is a one-off demand. A £40,000 roof replacement on an 8-unit block lands as £5,000 per leaseholder in a single year. With a proper reserve, the same cost is smoothed over 20 years of contributions. The mechanism is simple; the discipline is getting the target right.

Annual contribution

10-20%

Of annual service charge expenditure is a common benchmark. A Reserve Fund Plan refines this against actual building condition and deferred works.

Target balance

1 cycle

Of major works (roof, lifts, external redecoration, window replacement). A full cycle for most blocks is 20 to 30 years of contributions at steady state.

Plan refresh

5-10 years

Between Reserve Fund Plans from a RICS surveyor. Cost £500 to £2,000 each, recoverable through the service charge.

What lives in the reserve. Contributions from annual service charges. Interest earned on the trust account (also held on trust). Proceeds from any insurance claim that replaces an asset over its useful life. What does not live there. Day-to-day repairs. Operational expenses. Money for legal disputes. The reserve is for capital items with known replacement cycles, not for contingencies.

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LEASE-iQ · Lease-specific
Your lease determines whether reserves are mandatory and how they can be spent

Section 42 LTA 1987 imposes the trust over reserve money, but the lease sets what the reserve can fund (typically major works only) and whether contributions are required. LEASE-iQ extracts the reserve fund clause so you know whether you can build a fund, what you can spend it on, and any caps the lease imposes.

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Your situation

Three versions of this gap.

Pick the one that matches you.

1. We have no reserve fund, or it is nearly empty

4 to 6 weeks

Common in small self-managed blocks and older converted buildings. Every major works cost lands as a one-off demand or levy. Leaseholders are surprised each time.

What to do. Commission a Reserve Fund Plan from a RICS surveyor using the calculator below. Start annual contributions at the recommended rate in the next budget. Be transparent with leaseholders: the contributions increase their annual service charge but reduce the shock of any individual major works cost.

2. We have a fund but no plan. We are guessing the target

2 to 4 weeks

Annual contributions are being made but the target balance was set by habit or gut feel. The fund may be over or under the right level.

What to do.
  • Commission a Reserve Fund Plan to validate the target and the contribution rate.
  • Adjust annual contributions in the next budget based on the Plan's recommendations.
  • Minute the board decision with reference to the Plan.
  • Re-plan every 5 to 10 years.

3. A major works cost is approaching and the fund is short

Plan and consult

You know the works are needed (EICR C2 codes, roof leaking, lift MOT failing). The reserve does not cover the cost.

What to do.
  • Get the works quoted so you have a real cost.
  • If the cost per leaseholder exceeds £250, run Section 20 consultation before instructing. See the Section 20 page.
  • Plan the funding: partial drawdown from reserve, balancing levy for the shortfall, or phased works over two financial years.
  • Commission a fresh Reserve Fund Plan to reset future contributions so this does not recur.
Price

What a fair Reserve Fund Plan quote looks like.

Cost scales with building size and age. Older buildings have more items to plan around.

Pre-filled from your recent audit. Adjust anything that is not right.
Used to estimate per-leaseholder share.
Older buildings need more detailed plans.
More assets mean more research time.
Expected quote range (Reserve Fund Plan)
£800 to £1,280
Around £100 to £160 per leaseholder.
Section 20 not required
Per-leaseholder cost is below the £250 threshold.
See the Section 20 process →
All figures exclude VAT. Most UK property suppliers are VAT-registered and will add 20%; residential RMC/RTM companies usually cannot reclaim it, so factor it into the budget. Ranges are indicative only, based on published RICS surveyor rates as of April 2026. The Plan output typically covers 25 to 30 years with annual contribution recommendations and confidence bands. Get three written quotes.
Where do these figures come from?
  • Reserve fund target methodology: RICS Service Charges in Residential Management, 4th edition. View source →
  • Trust obligation on reserves: Landlord and Tenant Act 1987, section 42 (statutory trust). View source →
  • Tax treatment of reserve fund interest: HMRC: Income tax on service charge reserve funds. View source →

All figures are indicative ranges based on published rates checked April–May 2026. Always compare three written quotes for your specific building. Last reviewed for accuracy on the page legal-check date shown above.

Surveyors

Who to use, and what to insist on.

A Reserve Fund Plan is a quantity surveying exercise as much as a building surveying one. Look for a RICS member with Reserve Fund Plan experience specifically.

Find a RICS-registered surveyor for your Reserve Fund Plan: Get three written quotes for any commissioned work. Verify accreditation numbers before instructing.

Accreditations to insist on

  • RICS (Royal Institution of Chartered Surveyors) member, chartered building surveyor or chartered quantity surveyor. RICS firms directory.
  • Experience of Reserve Fund Plans or Stock Condition Surveys for residential blocks.
  • Familiarity with BCIS (Building Cost Information Service) rates for cost assumptions.
  • Professional indemnity cover appropriate for the fund size.

What a good quote includes

  • On-site condition inspection of all communal and external assets.
  • 25 to 30 year cost forecast by asset (roof, external redec, lifts, windows, boilers, etc).
  • Assumed replacement cycles with sources.
  • Annual contribution recommendation and target fund balance.
  • Sensitivity analysis (what if costs rise 2% or 4% annually).
  • Written report with photos and asset-by-asset notes.

Six questions to ask before you instruct

  1. Are you RICS-registered with Reserve Fund Plan experience?
  2. How many residential blocks of similar age and size have you planned for in the last 24 months?
  3. What period does the Plan cover (25 years, 30 years)?
  4. Will you use BCIS cost data or your own rates? Can you show the sources?
  5. Will the Plan include sensitivity analysis for cost inflation?
  6. What is the turnaround from site visit to written Plan? More than 6 weeks without a reason is slow.
Draft email

Copy this. Fill the amber slots. Send it to three surveyors.

Specifies a Reserve Fund Plan with sensitivity analysis and BCIS-sourced cost assumptions.

Funding and trust obligations

How the reserve is built and held. Where Section 42 LTA 1987 bites.

The mechanics are straightforward but the trust obligation is non-negotiable.

Building the fund via annual contributions

Each annual budget includes a reserve fund contribution line. Recovery is via the normal service charge with a Section 21B summary attached. The contribution rate should follow the Reserve Fund Plan (or be set to a sensible proxy if no Plan exists).

Holding on trust (Section 42 LTA 1987)

Reserve fund money is held on trust for leaseholders in a designated account. Separate from the operating service charge account where practical. Interest earned is also held on trust. The landlord, RTM, or RMC is the trustee. Misapplication of trust money is actionable by any leaseholder.

Drawing down for major works

Only for the purposes the lease specifies. When drawing down, Section 20 consultation applies if the works cost exceeds £250 per leaseholder (which most major works do). Run consultation regardless of whether the money comes from the reserve or from a fresh levy. See the Section 20 page.

Reporting in the annual accounts

The certified service charge accounts (see annual accounts) must show reserve fund movement: opening balance, contributions, spend, interest, closing balance. Leaseholders see whether the fund is building, holding, or drawing down.

Common questions

Six things directors and leaseholders ask about reserve funds.

Extracted so search engines and AI assistants can cite directly.

Does a leasehold block need a reserve fund?
Depends on the lease. Some leases require a reserve fund and specify how it is built and spent. Some permit one at the landlord's discretion. Some are silent, in which case a reserve can usually still be held as part of sound management. Most modern leases support or require reserves.
How much should a reserve fund hold?
Depends on the building. A Reserve Fund Plan from a RICS surveyor maps the building's major works over the next 20 to 30 years and sets a target. Common benchmarks are 10 to 20% of annual service charge expenditure as a contribution, building to a target that can cover one major works cycle.
What is Section 42 of the Landlord and Tenant Act 1987?
Section 42 requires that service charge monies held in advance or as a reserve fund are held on trust for leaseholders in a designated account. The trust is created by statute; the landlord cannot use the money for anything other than the purposes specified in the lease.
Who pays for a Reserve Fund Plan?
The cost of the Plan (typically £500 to £2,000 from a RICS surveyor) is a legitimate service charge expense, recoverable with a Section 21B summary attached. Usually well below the Section 20 threshold.
Can reserve fund money be used for non-major works?
Only if the lease permits it. Most leases specify that reserve fund money is for future major works. Using it for routine repairs or operational expenses would be a breach of the trust under Section 42 LTA 1987 unless the lease explicitly allows.
What happens to the reserve fund when a flat is sold?
Nothing. Reserve fund contributions are not refundable to departing leaseholders. The fund belongs to the leaseholders collectively via the statutory trust, and the benefit passes with the lease to the new owner. Buyers' solicitors ask about the reserve balance as part of conveyancing.
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Reserve fund, tracked against the Plan year-on-year.

BLOCK-iQ records the current balance, the Reserve Fund Plan target, and the annual contribution rate. When contributions fall behind the Plan, it flags. When a major works event draws down the fund, the Section 20 and Section 42 checks fire automatically.

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