Commonhold and Leasehold Reform Act 2002

Commonhold and Leasehold Reform Act 2002

2002 CHAPTER 15

Commentary on the Sections: Part 1

Operation of commonhold

Section 39: Reserve fund

90. Section 39 provides that regulations made under section 32 may require a commonhold community statement to include provision for the setting up and maintaining of reserve funds for the repair and maintenance of either or both of the common parts (subsection (1)(a)) and the units (subsection (1)(b)) within the commonhold.  Subsection (2) provides that, where such fund or funds are set up, the statement must provide for the commonhold association to set a levy from time to time (subsection (2)(a)), allocate percentages of the levy to be paid by each unit (subsection (2)(b)), again with the requirement that the percentages total 100 (subsection (3)), (though also allowing the setting of a 0% share for specified units) requiring the unit holders to pay (subsection (2)(c)) and providing for the issue of notices requiring payment (subsection (2)(d)).

91. Section 39(4) provides that funds established under this section may not be used in satisfaction of any debt other than a judgement debt arising from an activity which, under the commonhold community statement, could properly be funded from such a fund.  Thus, if regular roof replacement is an item to be funded by the reserve fund under a statement, and a roofing contractor has to proceed against the commonhold association, the reserve fund may be used in satisfaction of the debt if a court finds in the contractor’s favour.  However, if the association is required to pay a substantial excess to its insurer in connection with a claim and the payment of insurance is not a proper call on the reserve fund, the fund cannot be touched by the insurer, even if it is in possession of a judgement, except where the association is insolvent (see definition of reserve fund activity in subsection (5)(a)).  Subsection (5)(a) defines reserve fund activity, (see note to subsection (4) above), subsection (5)(b) specifies what is meant by assets being used for purposes of debt enforcement, and subsection (5)(c) makes it clear that the term judgement debt includes any interest on such a debt.