Sinking fund question

[Bantam Roosta]

Hi all,

I own a strata titled unit in NSW, which is 1 of 3. The other 2 are owned by extended family. Does anyone know if there is a legal requirement to contribute to a sinking fund even if we all agree not to? Is there somewhere where this information would be documented?

My thinking is that the money would be better served sitting in our offset accounts rather than the strata account doing nothing. We are not concerned about any other member not putting up cash if required.

BR

 

[Raddles]

Hi there

You may wish to review the following:

The Sinking Fund budget is based on estimates of spending of a capital nature or non-recurrent nature and must allow for raising the necessary capital amount to provide necessary and reasonable spending for major works in the present financial year and create a reserve for anticipated major expenditure for the next 9 years. (total of 10 years)

A yearly inspection to determine the current condition of the building and common property is advisable to determine approximately when the maintenance needs to be carried out
All relevant items that will require replacement in the future need to be included
Take into consideration the age, location, construction and the past maintenance program of the building. ( ie painting: if the building has just been painted estimate the cost of re-painting in approximately 10 years and set aside a tenth of the cost each financial year.
The sink fund forecast should take into account the existing bank balance, interest earned, tax payable, estimated replacement cost, allowance for inflation, recommended years of life and yearly contributions.
Review the forecast annually as some items may not need replacing due to good maintenance by the body corporate over the years.
It is necessary to ensure that money is available when required while at the same time ensuring that the fund balance does not get excessively high. Contributions, as well as the budget should be adjusted up or down depending on the needs.
A well-managed sinking fund forecast will ensure future repairs/maintenance are carried out when required, negating the need for a special levy.
A unit complex is like a motor vehicle it needs to be carefully maintained. By doing so it will add value to your investment by demonstrating to prospective owners that provision has been made for future repairs and that adequate funds are available.

If you do your budget and are prepared for contingencies and can have a specialy levy if required - you possibly could have money in your offset account.
I note that we have units - a couple that have very tight budgets and have next to nothing in the sinking fund and one that has a very high sinking fund which is in a term deposit - there is a large amount in this fund due to the budget for replacement of lifts - and as the amount can't be easily raised - it is kept in a special fund for that purpose. So it will depend upon the nature of the property.
thanks

 

[Bantam Roosta]

Raddles,

Some good points there and I appreciate your time, but am I by law, required to do what you've outlined above, or for example, if the building needs a paint job, can I just get the quote and split the bill three ways?

BR

 

[WashingtonBrown]

Yes you now need one prepared. Here is some info for you.

http://www.washingtonbrown.com.au/sinkingfunds.php

Regards

 

[Bantam Roosta]

Thanks for that. Looks like I won't be changing anything.

Just for clarification, is it only for expected expenses or do you also take into account potential problems like a burst sewer pipe, for example?

BR

 

[handyandy]

Hi BR

In principal you don't need to beef up the sinking fund but there could be problems down the track.

As was discussed at one of my meetings, if the strata does not beef up the sinking fund then subsequently a new owner bought in and a special levy was required the new owner has grounds to refuse contributing because the strata should have been contributing all along.

Cheers

 

[WASP]

Body Corp

1. I was at an AGM (in WA) where there were a dozen units about 20 years old

2. The Body Corp has zippo in the Sinking Fund due to an electrical fault and repairs made to the power going to one of the units -cost about $8000.00

3. The lines had to be dug up to find and repair a fault

4. The Strata Manager suggested a Special Levy -they had also discussed repainting exterior but had no funds

5. ALL members rejected the levy and some even complained regarding the normal levies going up $5.00 per 1/4 (last raise was a year ago, then nothing for a few years) it’s around $260 per 1/4 at the moment

6. An older lady who had been there for years suggested she would have to levae if a special levy was raised of $180.00 each 4 Months over the next two years, as did the Chairperson, the Strata Manager also had proxies for others who voted no Special Levy

7. Where do you go here, there are no funds in the Sinking Fund and no forward planning, most owners are owner occupiers -they've had great capital growth of late, but cannot see they can use that?

8. Feel like buying all the units as/if they come up over the years to take control, peeved about the units all starting to look individualistic, they are also getting rid of the Gardener as they cannot pay him any longer

 

[JoannaK]

this is the exact reason why the new legislation was brought in.

 

[redwing]

Joanna

Is that in all states?

From memory our Sinking Fund in the QLD complex is around $80K which seemed quiet healthy to me