As per the above really.
It’s not something I’ve had to deal with before, and we are looking at setting some up on new builds for leaseholders going forward.
My understanding is that we need to:-
- Establish the components which the sinking funds will be used for.
- Ascertain the cost of replacing the component at the end of its useful economic life.
- The cost of replacement is then divided by the number or regular payments that the leaseholder will make.
In regards to 2) I assume we will need to establish the cost now, and uplift each year based on an estimated CPI (or similar)? Or do we need to uplift the leaseholder contribution based on actual CPI each year? Or is a revaluation done from time to time depending on the component and it's expected life?
I presume we then hold the contributions on the balance sheet until a replacement is needed, where the cost would then offset then contributions?
Last question, I promise. The cost will also certainly differ. What happens to the residual value? Is it recovered / refunded, or do you reflect in the calculation for the next replacement?
Thanks in advance.