Strata Choice with Sinking Funds

Sinking Funds

It’s a good idea for an Owners Corporation to ensure their scheme has a healthy sinking fund. This fund ensures that there is money available for future capital expenses such as painting the building, replacing carpets and installing new roofing.

In 2009, the NSW Government made changes to the Strata Schemes Management Act 1996 regarding sinking funds. The legislation now requires an Owners Corporation established after July 2009 to develop a 10-year plan for their sinking fund. Section 75A features the relevant clause.

Owners corporation to prepare 10-year sinking fund plans

(1) This section applies to owners corporations established on or after the commencement of this section.

(2) An owners corporation to which this section applies is to prepare a plan of anticipated major expenditure to be met from the sinking fund over the 10-year period commencing on the first annual general meeting of the owners corporation.

(3) The initial plan is to be finalised by the end of the second annual general meeting of the owners corporation.

(4) The plan is to be reviewed and (if necessary) adjusted no later than at the fifth annual general meeting of the owners corporation.

(5) An owners corporation to which this section applies is to prepare a plan as referred to in subsection (2) for each 10-year period following the period referred to in that subsection and is to finalise and review the plan in accordance with the requirements of subsections (3) and (4) at the corresponding annual general meetings in the relevant 10-year period.

(6) An owners corporation may engage expert assistance in the preparation of a plan under this section.

(7) The regulations may extend the operation of this section to all owners corporations or to such classes of owners corporations established before the commencement of this section as are specified in the regulations.

(8) A regulation referred to in subsection (7) may make necessary modifications to the application of any provision of this section to an owners corporation established before the commencement of this section.

While there are no penalties for an Owners Corporation who choose not to prepare a 10-year plan, at Netstrata we would strongly urge all Owners Corporations and not just those recently established, to comprehensively document how they will repair and maintain common property for the next decade and how they will raise the appropriate funds to cover these works. It’s a good idea to revise these plans every five years.

With an agreed plan in place, Owners Corporations can more effectively manage the capital expenses for the benefit of everyone in the scheme and minimise the risk of having insufficient funds available when expensive building repairs that may not have been foreseen without a plan, need to be carried out.

According to the Department of Fair Trading website, “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. Each sinking fund plan should reflect the individual needs of its scheme.”

The 10-year plan must be approved by owners at an annual general meeting.

We recognise that putting together a 10-year plan may seem a little daunting. Luckily there are businesses that specialise in preparing sinking funds – especially when Owners Corporations who are responsible for older buildings are required to assess the state of a range of fixtures and fittings, estimate their lifespan and then predict their maintenance and/or replacement cost over the next 10 years.

Scheme members concerned that their Owners Corporation is stalling on preparing a plan, may refer the matter to the Consumer, Trader and Tenancy Tribunal. The CTTT can issue an order instructing the Owners Corporation to meet its obligations.

For more information on sinking funds and 10-year capital expense plans, contact your Strata Manager at Netstrata.