When it comes to sinking funds, we have heard it all. From “why do I need a sinking fund, my building isn’t sinking” and I guess you can imagine the rest!
If we weren’t in the Strata industry, chances are we would have thought similar things. In this article we will share all you need to know about sinking funds and your Body Corporate.
A Body Corporate must have a sinking fund if it is registered under the:
- Standard Module
- Accommodation Module
- Commercial Module
- Small Schemes Module
Just like a car, things in your home will need to be regularly maintained to avoid them breaking down and resulting in costly bills. Obviously, you don’t need to change the oil and top up the coolant in your home, so what does the money in your sinking fund go towards?
The money in a sinking fund can be spent on several different things such as:
- Painting the building, recarpeting, updating common area furniture etc.
- Major structural repairs to common property
- Maintenance repairs
- Common Property Fences
- Lift maintenance
- And more!
Now that we know what you need to maintain your scheme, let’s look at how the funds in the sinking fund are raised.
The sinking fund is raised through:
- Owners’ contributions to the sinking fund
- Interest received from the fund’s investments
The sinking fund levy (owners’ contribution) is often kept and administered by a community management company such as SSKB, on behalf of the Body Corporate.
The Sinking Fund Budget:
Every financial year, Body Corporate Committees must prepare a Sinking Fund budget. This is to ensure the sinking fund has sufficient finances to provide necessary and reasonable spending for the upcoming financial year. This is also necessary to ensure an amount is reserved to cover likely future spending for at least 9 years after the current financial year. Building up funds reduces the likelihood of having to ask lot owners to make a large, one-off payments to sinking fund levies via a special levy, although it does not totally remove the possibility of this occurring.
If your strata scheme is looking for advice on what a sinking fund is, and how best to manage it, talk to SSKB. We can provide you with expert advice and tailor it to the details of your individual scheme to ensure you get the best outcome.
If you are not a client of SSKB and would like to see how easy it is to make the switch, click here to contact us for an obligation free consultation.