What is the key purpose of a sinking fund in leasehold arrangements?

The key purpose of a sinking fund in leasehold arrangements is to save for large, anticipated future expenses. A sinking fund is a designated account where money is set aside over time specifically to cover significant costs that are expected to occur, such as major repairs or renovations, replacements of communal facilities, or other substantial expenditures that are not part of regular operational expenses.

By accumulating funds in this manner, leaseholders can ensure that when these substantial costs arise, the necessary finances are already in place, reducing the need for sudden, large financial contributions from all leaseholders at once. This planning and financial foresight help maintain the property's value and ensure that necessary upkeep can be managed in a structured and equitable manner, preventing any financial strain on the leaseholders at the time the costs become due.

In contrast, distributing profits equally among leaseholders, covering daily operational costs, or lowering service charge fees do not directly relate to the purpose of a sinking fund. These options either focus on ongoing, regular costs or financial management strategies that do not specifically address the need for pre-planned savings for future large expenditures.