Understanding your sinking fund

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If your strata corporation is short of funds then we recommend you use your capital works fund (aka maintenance fund, sinking fund, etc).  It’s the obvious place to go – funds are readily available without diminishing the cash resources of owners.  But it makes economic sense as well – a sinking fund is the most expensive option for the majority of owners, so if you use it, you’ll be reducing the economic drag on the corporation.

However, in some states, legislation doesn’t allow you to do this and in others there are processes or constraints that you must comply with – check out our handy guide below to learn more.

State Legislative Requirement & Process
VIC Victorian legislation only mandates OC’s greater than 100 lots or with a turnover $200,000 to have a Maintenance Plan and Fund. These funds are not available for routine maintenance and payments like insurance, cleaning, sanitation which are included in annual fees, usually paid quarterly. Money may also be paid out of the maintenance fund if the owners corporation by special resolution approves the payment.
NSW NSW Legislation requires a The Capital Works Fund (previously known as the ‘sinking fund’) as a financial safety net for major capital expenditures for the building (such as replacing roofing, any lifts, pool equipment, cladding, fencing etc.) and is approved at Annual General Meeting or EGM
QLD Queensland legislation indicates that sinking fund balances for capital works etc are not used for recurrent expenditures normally paid from the administrative fund.
ACT, SA, WA, NT, TAS State specific requirements for Owners Corporations, Strata Corporations and Body Corporate

What does this all mean? It’s simple – be pragmatic and use funds that are available. Whilst state strata legislation may throw up a few impediments, there are good economic reasons to use your sinking fund. To ensure this is managed properly, you’ll need to perform the following action items:

  • OC/SC/BC to call EGM and reset budgets for the Administrative and sinking funds.
  • Consider a practical solution and take steps to provision for external funding.
  • Discuss your situation/proposed course of action with your Strata Manager / Agent /Legal Adviser

If you have any questions, please get in touch with us today via strata@lannock.com.au. We can let you know what financial options you have available, and help put you on the right path.