Think HBR

Your guide: Sinking to maintain strata buildings

Builder
Brad Gribble
Lake Group Strata
 
of strata properties is determined and funded. Here are the three main steps.
 
1. Establish a sinking fund
A sinking fund is set up by the owners corporation to cover the costs of future capital expenses such as painting the building, driveway refurbishment, replacing common property items or lift overhauls. Owners in two-lot strata schemes may be exempt if certain conditions are met and the owners corporation passes a unanimous resolution not to set up a fund.
 
2. Create a 10 year plan
Strata schemes are required by law (Section 75A of the Strata Schemes Management Act 1996) to have a 10-year sinking fund plan in place. There are no penalties in the legislation for not developing the plan but any owner can apply to the Consumer,
Trader and Tenancy Tribunal for an order to develop a plan.
The plan shows how the owners corporation will repair and maintain common property and fund the works. The amount required for the plan will vary between schemes. A sinking fund plan should reflect a scheme’s individual needs. Newer schemes generally require less money than older schemes with more repair work due.
 
The plan must cover 10 years from the date of the first AGM in the 10 year cycle. A decision on who will prepare the plan is made at the first AGM. The plan must be completed in time for the following AGM. The fifth year AGM is generally a time for review and adjustments.
 
Owners corporations can put the plan together themselves or engage an outside expert such as a quantity surveyor or property valuer. If you are doing it yourself, follow these three basic steps.
 
Step 1. List all common property. Whilst water re-use systems, rainwater tanks, lifts, swimming pools, pool filters or heaters, gymnasiums and gardens are obvious items, remember to include hot water services, plants, pots, screens, pergolas, awnings, retaining walls, TV antennas, the letterbox, intercom, lighting and paving.
 
Step 2. Estimate when repairs will be needed. Guarantees from previous work, warranty statements and service plans may help.
 
Step 3. Estimate costs. Service plans, previous quotes or new quotes can all be used.
 
3. Raise the funds
The owners corporation can decide how they want to raise contributions from owners. The sinking fund plan must show how funds for particular expenses will be raised so all owners and prospective buyers know their future liabilities.
Putting sinking fund monies into interest bearing accounts with approved financial institutions gives owners corporations the opportunity to earn interest on their investment.
Contributions to the fund can be levied regularly - yearly, halfyearly, quarterly or monthly. Others agree to use a large special levy or borrow money when major work needs to be done.
You need to carefully weigh up the financial implications of the options.
 
At each AGM a resolution must be passed for the amount to be credited into the sinking fund for the following 12 months. Money that is not required for the fund can only be distributed back to owners by unanimous resolution.
 
For further information contact Brad Gribble on (02) 4942 3305, email brad@lakegroupstrata.com or visit www.lakegroupstrata.com.au
Brad Gribble Brad Gribble

Is a Director of strata and community title manager Lake Group Strata.
Brad has 21 years property industry experience and Lake Group Strata is celebrating 20 years of operations. Lake Group Strata was a finalist in the Professional Commitment to Ethics and Service category and Strata Industry Leader of the Year category in the 2014 Strata Community Australia Awards. www.lakegroupstrata.com.au

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