The Benefits of a Sinking Fund
Updated: Sep 6, 2021
In our regular feature section Horner Benefits, we explore the things that will benefit our clients, explaining how you can live a happier life in Strata.
The administration fund is often referred to as the day-to-day expenses of the Corporation, and the Sinking Fund as the Corporation’s “savings” account. The sinking fund is an account where collected contributions are saved and then committed to major building repair and maintenance expenses.
There is no requirement under the Strata Titles Act to have a Sinking Fund. However, to improve planning for large scale items, legislation states that unit groups of 7 or more must discuss non-recurrent expenses that they could incur within the next three years (5 for groups of 21+) at an Annual General Meeting.
If you own in a Community Title, there is a requirement to continue to have a Sinking Fund, but there is no minimum balance required.
If a Corporation has not yet introduced an adequate Sinking Fund levy, there are benefits to initiating one.
It is inevitable with property ownership that the building will age and require upkeep. A special levy requires collecting money in a short timeframe to pay for these sorts of repairs and puts owners under pressure to raise funds. Planning for large maintenance items such as painting, gutter replacement, roof restoration, and fence replacement, for example, will avoid the need to raise once-off special levies.
Contributing to the sinking fund quarterly, in an amount agreed by Owners at the Annual General Meeting, is a proactive approach to saving for these items.
Introducing a sinking fund levy, then discussing and agreeing to the contribution amount is a great way for owners to prioritise maintenance. Owners might agree that a structural item such as new guttering is the first priority and that repainting is secondary. Therefore the contributions are accumulated for guttering first and painting after.
A Sinking Fund is a proactive approach to common property maintenance, and the benefits far outweigh the negatives. Not to mention, a sinking fund with a healthy balance attracts investors as it offers a level of protection when purchasing in the Corporation.