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Do you “get” the capital works fund? No, me neither and neither do all those committee members around the state who think a spreadsheet is something you put over the furniture when you are painting the ceiling.
I know that it used to be called the sinking fund and you have to have a 10-year plan but renew it every five years (which sounds like a five-year plan to me).
And it’s for things like lift repairs … but not maintenance (or is it?). Confused? Let’s see what Fair Trading says:
The owners corporation is required to prepare a plan of expected major expenditure to be met from the capital works fund. The plan is for a 10-year period commencing on the first AGM of the owners corporation, and must be reviewed at least every 5 years.
So what’s it for?
Items of major expenditure could include, for example, to replace the roof on a building.
Replace the ROOF? This is serious stuff. How much is it going to cost?
The amount required for the 10-year plan may vary between schemes, for instance, newer schemes may require relatively less money than the plans for older schemes with more repair work due. Each capital fund 10-year plan should reflect the individual needs of its scheme.
OK, who decides on whether it a good plan or not?
The 10-year plan must be approved by owners at an annual general meeting (AGM).
Right. And does this require teams of engineers and accountants? Or can we just recycle the figures that Mr Papadopoulos in number 23 used to write on a sheet of butcher’s paper?
Owners corporations can put the 10-year plan together themselves or engage independent experts to prepare the plan.
Hmmm. There are two things we do know about Capital Works Funds. One, you can do all the fancy accounting and forward planning you want but you are not legally obliged to fund it. I know … I know!
Secondly, our friends at the Owners Corporation Network are having a Capital Works Fund Fiesta (OK, a seminar) on Saturday, August 19 in Jacksons Landing.
Click on the Flat Chat Diary or go straight to THIS LINK for more details.
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@JimmyT said:
Do you “get” the capital works fund? No, me neither…Actually, having done it, it’s not that difficult.
I know that it used to be called the sinking fund and you have to have a 10-year plan but renew it every five years (which sounds like a five-year plan to me).
For those in the ACT it is still called a ‘sinking fund’. Also, must cover at least 10 years but there is nothing to stop you anticipating that something will need doing 20 years from now and planning to accumulate about half the necessary funds over ten years.
Ours is designed for 10 years with 5 year reviews as required by the ACT Act. So, our present plan is for 2015-25 but in 2020 we should review it and extend it to 2030. IE it then becomes the 2020-30 plan.
And it’s for things like lift repairs … but not maintenance (or is it?). Confused? …
Early this year I resigned from our committee after being treasurer after 9 years. My successor stated to the AGM that our sinking fund plan was deficient because it did not provide for a couple of maintenance items. However, it had been noted in the annotation of our plan that these few items were funded instead from a line in the Administrative Fund budget for this category of maintenance. In my view, these were routine items that always cost a few hundred to a few thousand dollars every single year and they did not need to be part of the sinking fund plan. So long as they were being attended to and funded it did not really matter where they were funded – it cost the owners the same amount either way. At our recent AGM, the new treasurer put a motion to amend the sinking fund plan so that these items would be funded from the sinking fund. Consequently the levy for the admin fund was lowered a bit and the sinking fund increased a bit.
A generous interpretation would call this a trivial difference of style about which reasonable minds could differ and of little consequence. A less generous interpretation that was suggested to me was that the new treasurer made the change much as certain animals lift a leg to mark their territory.
@JimmyT said:
Owners corporations can put the 10-year plan together themselves or engage independent experts to prepare the plan.Hmmm. There are two things we do know about Capital Works Funds. One, you can do all the fancy accounting and forward planning you want but you are not legally obliged to fund it. I know … I know!
This is what we were informed by our strata manager…
1. You MUST pay an independent company to produce the 10 year plan, owners corporations are not legally able to do this
2. Once we approve a plan we are obliged to carry out all works in the year they are reported or we could be fined
I thought this was pretty over the top. Where do SMs come up with this garbage?
Part of a proper plan is a schedule of anticipated levies for each year of the plan. The idea is to have contributions only rising gradually, roughly in line with expected inflation, while expenses will be lumpy. Most OCs will have a small number of large expenses expected to occur infrequently. The idea is to smooth out the funding of those infrequent large expenses across past, present and future owners so that all contribute fairly and similarly.
Many OCs will be able to do their own plan. It is not hard to estimate future maintenance based on past maintenance costs for some items. For other things, you might get a quote or two. Our OC got professional advice for our 2010 plan but then we did things ourself when we reviewed and updated and documented it all rather better in 2015. For many items we could combine the professional cost estimates with our own experience to come up with numbers we could be quite confident about.