Sinking Fund Plans
From $385
What is a Sinking Fund Plan?
A plan as to how the owners of a strata plan will repair and maintain common property and raise sufficient funds to cover the costs. The amount required for the 10-year plan will vary between schemes, for instance, newer schemes may require relatively less money than the plans for older schemes with more repair work due.
Do the owners need to get a Sinking Fund Plan?
Yes, from July 2009, all strata schemes in NSW are required by law to have a 10-year sinking fund plan in place (Section 75A of the Strata Schemes Management Act 1996 ).
The 10-year plan must be approved by owners at an annual general meeting (AGM) and must be reviewed and adjusted, if required, in the first five years.
What is the benefit of obtaining an Sinking Fund Plan?
A good plan should increase the value of your property by ensuring it presents well and is well maintained.
Our Australian designed and owned software provides flexibility in our sinking fund recommendations to ensure that you
- Do not have excessive funds sitting around in the bank,
- Have minimal but sufficient annual Sinking Fund contributions (no special levies)
- The owners do not have to pay levies larger than are required.
Sinking Fund Plans (Aust) Pty Limited
We specialise in and are passionate about providing 10 Year Sinking Fund Plans which are compliant with s75A of the Strata Schemes Management Act 1996. Our Sinking Fund Plans are easy to read and understand. Please see the testimonials.
Does a Sinking Fund Plan increase the amount that owners have to pay on an annual basis?
This is not a black and white answer, each sinking fund plan should reflect the individual needs of its scheme. On some occasions we have recommended a reduction in the amount being collected due to unnecessary sitting idle the account. An increase may be recommended if the current amount being collected is insufficient to address the projected cost requirements of the improvements and its surrounds.
Owners corporation obligations
10 Year Sinking Fund Plan - This Plan is required by s75A of the Strata Schemes Management Act 1996 and is to be reviewed at least each five years.
The purpose of a Sinking Fund Plan is to determine the amount to be set aside each year to meet expenses of a capital nature. These include the replacement, renewal, or repair of both minor and major capital items such as windows, fencing, concrete paths, painting of buildings, amongst many other things.
The benefit of obtaining a Sinking Fund Plan is to provide for a pool of funds to be easily applied to maintain the appearance and quality of the improvements contained within the strata scheme, and thereby assisting the Owners Corporation to meet their legal obligations under s62 of the Strata Schemes Management Act 1996.
There is a Duty of Care to owners as well as visitors. s62A(1) Strata Schemes Management Act 1996 states “an Owners Corporation MUST properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the Owners Corporation”.
Can Owners vary a sinking fund plan?
Yes, it is their fund to use as they need providing they meet their strict obligations to repair and maintain the common property.
How often should a Sinking Fund Plan be reviewed?
We suggest a Sinking Fund Plan be prepared every 2-3 years even though the legislation recommends every 5 years. (See s75A (4) of the Strata Schemes Management Act 1996)
Following your instructions to proceed with the 10 year Sinking Fund Plan we will,
- inspect the subject property and identify likely items requiring repair, renewal, replacement or maintenance within 10 years.
- complete and issue of the 10 year Sinking Fund Forecast with the recommended sinking fund amount to be set aside each year, the total amount to be expended throughout the 10 year term, including an allowance for the escalation of construction costs, and the likely timeframe for the maintenance or replacement of each item.
- ensure that the 10 year Sinking Fund Forecast will be carried out by a Registered Valuer without limitation.
- provide the Owners Corporation with the opportunity to include additional items that they would like. For example, renewal of landscaping, upgrading of any other common areas.
- take photos of relevant replacement or maintenance items will be provided to you.
- Our Sinking Fund Plans will identify various large cost and many minor cost capital works which may be required in the following 10 years, as well as making an allowance for items beyond the 10 year period.
This includes maintenance, renewals and replacements as well as allowances for improvements requested by the owners.
The current legislative framework requires compliance with
- Strata Schemes Management Act 1996 section 62 requires an owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation (full extract attached).
To assist the owners in their strict duty under section 62 the following legislation was established
- Strata Schemes Management Act 1996 section 75A requires owners corporations to prepare a plan of anticipated major expenditure to be met from the sinking fund over the 10-year period, and The plan is to be reviewed and (if necessary) adjusted no later than at the fifth annual general meeting of the owners corporation (full extract attached).
Reviews - Best way approach for you to your owners
- Recommend a review 5 years from the date of the last plan, or the date of the required compliance
- Suggest a new report with a new site inspection
- You and your owners should compare recommended annual contributions rather than details
- It is like reviewing a budget to adjust and fine tune savings
Purpose
- Avoid unnecessary Special Levies
- User pays
- A fairer system
- Adds value ? building well maintained and large S/F balance
- Independent unbiased advice
- Saves strata managers time
- Professionally carried out
- Risk Transfer - we have professional indemnity insurance for the SFP (do you?)
- Legal requirement to maintain common property
- Good practice
- Addresses latent and unforseen costs
Goal
To determine the amount to be set aside each year
What a Sinking Fund Plan is NOT
- Not a detailed quote for every single item, for replacement, renewal or repair
- Not a highly accurate assessment for the cost and time frame
- Not a Dilapidation Report
- Not a Maintenance Schedule
- Not an opportunity for the owners to get free building advice
Final points to consider
- Aging population on fixed incomes
- No ability to comply without adequate funds
- Potential increase in safety and litigation issues (and potential no insurance)
- Legislation: strict duty to repair and maintain common property
- Resistance to set money aside may present a difficult management situation
Risk management
Appropriate funding may prevent the owners from breaching their strict statutory obligation to repair and maintain common property under section 62 of the Strata Schemes Management Act and prevent your owners from incurring unnecessary costs and penalties as occurred in Seiwa Australia Pty limited v Owners SP35042 [2006] NSWSC 1157 and Nicita v Owners SP64837 [2010] NSWSC 68.
Risk transfer
It is important that if your owners refuse to comply with a statutory obligation that you have properly documented their choice in spite of your best advice as a professional strata manager. They should be aware that the liability for this action has passed from you to them.
We are available to discuss any Valuation, Safety or Strata matter. Please feel free to contact our key principal Shane Foley at any time on 9114 9800 or 0412 039 189.