Sinking or maintenance funds
Talk to your strata manager and get their advice on whether it is better to fund the project through the sinking fund, administration fund, or by raising a special levy.
You’ll need to include a suggestion for project funding in your business case and in your motion. Remember to emphasise the payback period and reassure people that costs will be recouped when the investment is for more energy efficient assets.
The most obvious source of funding for improvements to common property is the sinking fund, sometimes called the maintenance fund.
1. The sinking fund
Apartment owners in strata buildings are required to pay levies. Levies are split into two separate areas:
- The administration fund: used to pay contractors for maintenance, insurances and budgeted repairs
- The sinking fund: sometimes called a reserve fund, this is for emergencies and future major capital works on common property
Long term maintenance plan
A well-managed strata building will have a long-term ‘sinking fund plan’ or ‘maintenance plan’. Ask your strata manager or facilities manager whether a plan has been developed for your building. These should be reviewed regularly, and need to be reviewed in the first five years; so even if your project is not yet included in the plan there is still an opportunity to add it in.
Approval to use the sinking fund
For your project to be covered by the sinking fund you will need to go through an approval process. In some cases the executive committee can make a decision to use the sinking fund if it is for a very small project or amount of money.
In many cases the decision will need to be made by a vote at an annual general meeting or extraordinary general meeting. You will first need to go through this process to get the support of the executive committee and other owners:
In Victoria, from 2007, ‘prescribed’ strata schemes are required to have a 10-year maintenance plan and if approved by the members, then it must be funded.
Prescribed strata schemes are those that consist of more than 100 lots, or levies annual fees in excess of $200 000 in a financial year. This means that owners must plan how they will repair and maintain capital common property items and raise sufficient funds to cover the costs.
‘Non-prescribed’ strata schemes may choose to prepare a maintenance plan.
Developing the maintenance plan
The 10-year plan must be reviewed by owners at an annual general meeting (AGM). To include a line item in the maintenance plan and increase the maintenance fund to cover costs associated with the project, simply requires an ‘ordinary resolution’.
Approval to use the maintenance fund
Expenses cannot be taken out of the maintenance fund for purposes other than those identified in the plan, unless for urgent matters, or via a special resolution for an extraordinary expense, such as the project.
A long-term maintenance plan needs to project the current and next nine years.
Emergencies are funded by special levy as sinking funds only have a minor contingency amount. The rest of the funds are raised for forecasted expenditure.
The Department of Justice and Attorney-General website has comprehensive information for Queensland body corporate members about sinking funds and other financial management.
Tasmania has no specific requirements other than generally providing for current and future needs of the body corporate.
There is a newly legislated requirement for owners to develop a long-term ‘sinking fund plan’ or ‘maintenance plan’ in South Australia.
In NSW, from July 2009, all strata schemes are required by law to have a 10-year sinking fund plan in place (Section 75A of the Strata Schemes Management Act 1996 ).
This means that owners must plan how they will repair and maintain common property and raise sufficient funds to cover the costs. The 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.
2. Raising a special levy
Common property improvements are almost always on the agenda - if it’s not lift refurbishments or roofing repairs, it’s re-painting the walls or new carpet for the hallways. No sooner is one improvement addressed than another crops up.
If the sinking fund cannot cover the cost of your project but the majority of owners and the executive committee are still supportive then they may agree to raise a special levy for the project.
Raise this idea delicately and with empathy; remember that owners will then be paying a special levy alongside the normal levy that contributes to the sinking fund.
To suggest that the project is funded by a special levy you would go through the same process above (developing a business case, drafting a motion and submitting it to be put on the agenda of an AGM or EGM).
3. Other sources of funding
If your executive committee has approved a large, expensive project for your building in the last few years then they may be reluctant to fund your project through the sinking fund or through a special levy.
You might want to find out whether: