Sinking FundsThe Hafod Approach

Richard McQuillan

Head of housing Services

Hafod Housing Association

How do Hafod Manage Sinking Funds?

• Site surveys• Component accounting• Annual reviews• Leaseholder charges• Introducing Sinking Funds• Avoiding problems• Open & transparent

Site Surveys• Itemise all major works components• Ensure all components included in exercise• Site surveys to verify;

– Component cost– Age– Condition– Length, size, type etc.

• Highlight, walls, fencing, paths & roads etc. on site maps

• Dangers of desktop exercise

Component Accounting• Individual accounts for each site• Each individual component costed• Estimated date of works

– Lifespan – Condition

• Divide overall cost of works by number of years

• Divide by number of residents • List components • Agree percentage to cover management

charge

Annual Reviews Annual checks:• Check the condition of the component

– Bring forward works?– Put back works?

• Check the estimated costs reflect market values

• Include annual inflation uplift• Check sufficient monies in the sinking fund to

achieve future works• Calculate whether there are insufficient funds

– Agree timescale to ‘catch up’ i.e. 10 years– Agree additional charge per year

Leaseholder Charges

• Sinking fund charge (General Repairs Reserve) costs supplied

• Breakdown of each component:– Replacement cost– Annual charge– Renewal date

• Sinking fund deficits • Include in overall leasehold service charge

Introducing Sinking Funds

• Highlight obligations within the lease• Consultation with leaseholders

– Newsletters– Meetings

• Be open & transparent• Explain the charges• Aim to avoid future ‘one off’ charges• Overcoming sinking fund deficits

Recent PressPontypool leaseholders' anger at £8,000 bill

11:50am Thursday 28th June 2012 in News

Bron Afon Lease Action Group are unhappy that they have been told to pay extra for improvements to the outside of the block of flats in New Road, Garndiffaith

Recent PressBron Afon leaseholders in Cwmbran face bills of up to £27,000 for repairs

9:30am Thursday 5th July 2012 in News By Hayley Mills

Facing huge bill the Cwmbran leaseholders

Avoiding Problems• Ensure the lease allows the charging for a

sinking fund• Ensure accurate site survey

– Prevent finding new components to add to the charge

– Avoid looking inconsistent– Set charges and keep to them

• Check the estimated costs reflect market values

• Include annual inflation uplift• Decide if works need to be brought forward /

can be delayed

Open & Transparent• Provide break down of sinking fund

charges• Provide sinking fund accounts (on target /

deficits)• Remind leaseholders that this approach

allows a manageable build up of sinking fund monies

• Talk through any concerns• Be consistent

Any Questions?