Remember growing up and being taught the importance of looking after things so they last? Property is no different. While real estate is typically seen as a solid investment, one of the keys to a property holding its value long term is undertaking regular maintenance and repairs. Property wear and tear is a fact of life but some jobs are bigger than others. In communities with multiple owners like apartment buildings and shopping centres, sinking funds ensure these big jobs are planned for, and able to be funded, so the property is maintained and owners’ investments are protected.
We’ve answered some common questions about sinking funds – also known as maintenance funds or capital works funds in some states – to help you understand why they’re important, how they work and how Whittles can help.
First, let’s set the context. All property owners in strata schemes pay levies to their body corporate or owners corporation. Generally, there are three types of levies that make up strata fees. The first is an administrative levy to cover ‘everyday’ recurrent expenses like insurances and utilities. The second is a special levy which can be charged to owners in rare situations where there’s an emergency or extenuating circumstances. The third levy – the sinking fund – is a regular contribution from owners to ensure there’s enough money set aside to cover major capital works required in the future.
The thing to remember with all levies raised by bodies corporate and owners corporations is that the money must be spent on projects which the whole community can either use, or benefit, from. Money raised through a sinking fund is designed to fund long-term maintenance and can range from installing new common air-conditioning systems to external painting, lifts, common roofs, fencing and carpet replacement. These projects can be expensive which is why regular contributions are needed from owners to save for them over time.
Payment frequency depends on the decisions made by owners when setting their annual budgets. The sinking fund levy, and frequency of payment, is decided at the corporation’s annual general meeting where all strata fees for the coming year are set. That said, the sinking fund levy is typically paid quarterly as part of the property’s regular strata fee schedule.
Expenditure on capital works requires an approval process from either the committee of management or at a general meeting of owners. Annual financial statements are required to show all income and all payments made during the financial year and are provided to all owners. This applies equally to administrative funds as well as sinking and maintenance funds.
Some states and territories have mandatory requirements for a Sinking Fund Plan or Maintenance Fund Plan to be prepared. This may only apply to larger corporations but smaller corporations can also elect to have a plan. Your local Whittles team can advise what’s required in your locality.
Each plan generally outlines the major capital items anticipated to require repair and replacement within the next 10 years. Plans should be continually reviewed and revisited every five years.
Plans should consider a range of factors including a property’s location to the ocean where the corrosive coastal sea air can result in some items needing to be replaced more often.
We can help management committees review their property’s strengths and weaknesses and create a budget to help them manage their sinking fund plan long term. Ultimately, the final decision on works to be undertaken rests with owners.
Like to know more about how Whittles can help management committees operate their sinking funds? Contact your closest Whittles branch and speak with a member of our team.
Updated: 13 Jul 2022