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Topic
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Is there a minimum dollar value for a Sinking Fund? Can it go to $0. I have been told that there is a minimum of 1% of the value of the plan.
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Replies
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No minimum sinking fund legally required in any state as far as I know and you don’t even need a sinking fund if you don’t want to.
@kiwipaul said:
No minimum sinking fund legally required in any state as far as I know and you don’t even need a sinking fund if you don’t want to.There’s no minimum amount required but you DO need to have a sinking fund under section 69 of the Act
69. Sinking fund to be established
(1) An owners corporation must establish a sinking fund.
It couldn’t be clearer than that (although it doesn’t apply to two-unit schemes).
On the question of a building with an empty fund, unless it had just been used to undertake renovations and repairs, as a prospective buyer I would run 1.6km from any block that didn’t have a reasonable fund (depending on age etc) because that tells me the people running the building are short-sighted morons who are planning to sell as soon as the they get a sniff of any problems.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
@jpickup said:
Is there a minimum dollar value for a Sinking Fund? Can it go to $0. I have been told that there is a minimum of 1% of the value of the plan.In NSW the requirement to do a forward plan at least every 5 years should establish the minimum amount needed to undertake the maintenance required.
Refer STRATA SCHEMES MANAGEMENT ACT 1996 – SECT 75A. Wherein legislation was passed to ‘phase in’ mandatory 10-year sinking fund plans beginning from July, 2006 for all NSW Strata Schemes. Essentially all NSW Owners Corporations now have to have 10-year sinking fund plans done for their Strata Schemes in an effort to eliminate the problems of ‘insufficient long term capital works funding’ .
@Cosmo said:
Refer STRATA SCHEMES MANAGEMENT ACT 1996 – SECT 75A. Wherein legislation was passed to ‘phase in’ mandatory 10-year sinking fund plans beginning from July, 2006 for all NSW Strata Schemes. Essentially all NSW Owners Corporations now have to have 10-year sinking fund plans done for their Strata Schemes in an effort to eliminate the problems of ‘insufficient long term capital works funding’ .
Yes I agree this is what the act says but how do you enforce it, the SM cannot because he works for the strata, the EC won’t because they must have voted not to have one at the AGM and so the only people who can enforce it are individual owners and they would have to go to conciliation and then adjudication to get an Adjudicator to order the Strata to implement this part of the act.
How many owners do you think would waste their time going to NCAT to increase their own strata fees. My opinion is if they did this they would win but the cost could be huge as more then likely the Adjudicator would decide the sinking fund levy rate.
We must make a clear distinction between the legally requirement to have a sinking fund PLAN and the lack of any clear obligation to fund it. That is where the whole things falls apart. The only benefit of requiring an assessment (rather than a fully-funded budget) is that it allows prospective buyers to ask how the Owners Corp plans to pay for all the maintenance they have identified as being necessary in the future. Even if they are planning to wait until the work needs to be done, and then either raise a loan or (heaven forbid) a special levy, it should be written down somewhere so that buyers can truly be aware.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
It’s funny – our levies are pretty high, we put them up a few years ago to make provision for a lot of work that needs to be done, and we have been spending the money on a number of those works – we don’t have a huge balance in the sinking fund although it is not small (we have quite a bit more work to do). This included one project that cost about $140K. We also raised a special levy that was relatively low to fund that project.
Two apartments in our scheme sold this year and a real estate agent suggested to one of the owners that our levies were putting people off, because the levies at other blocks were lower. He even suggested that someone might be embezzling the funds. Now obviously they don’t live here, but all you need to do is look around to see that work needs to be done. And if you look at the records you can see the work that has been completed. You can’t compare other blocks because they are completely different.
If I were looking at buying an apartment, I would rather the OC were budgeting appropriately, rather than keeping their fingers crossed and then hitting everyone with a special levy. But that is not how everyone sees it.
Hello ScotlandX
A Real Estate Agent would say that about the levies. They’ll say one thing to a prospective purchaser, and another to an existing owner. Anything to make an easy sale. I know that when I bought the villa where I now live it was only a couple of years old, and there was no way we could fund the requirements for our strata plan from the levies originally set. I recall that a 30% or so increase was needed, and naturally there was consternation from the owners when this was put to the AGM, but reluctantly this budget was passed and things have since settled down. There is a new complex in town where the initial levies are set less than ours, and there are such facilities there which will require more levies than we pay. The same thing will happen there a couple of years down the track, and as far as I can gather this is a common practice to set unrealistically low levies on new constructions. The gullible then swallow the bait when purchasing and cop a hefty increase a little way down the track.
I’d agree with you that proper budget management is the way to go rather than being influenced by sales hype of a real estate agent, if I could chronicle the rubbish I have been told by that “profession” I could fill a book the size of War and Peace.
Oh absolutely – in the case of that real estate agent, he received a phone call telling him that if he continued in that vein, including the remarks about embezzlement, he would find himself in a very difficult position.
They should be ashamed of themselves.
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