Sinking Funds. It’s a term you may hear a lot if you are living in a Body Corporate but what does it actually mean?
A Sinking Funds is effectively a deposit which exists to allow a Body Corporate to pay for repairs and maintenance of their building.
Homes are like cars. If you want to retain their value, have them functioning well and run smoothly, you need to ensure the appropriate upkeep and maintenance is performed.
Just like a car, things in your home will need to be regularly maintained to avoid them breaking down and resulting in costly bills. Noticeably, you don’t need to change the oil and top up the coolant on your home so what does the money in the sinking fund go towards?
The money in a sinking fund can be spent on several different things. It can be spent on capital expenditure, or non–recurrent items. In a large strata scheme, this often includes large or one-off items, such as painting the buildings or major structural repairs to common property.
The sinking fund can also be used to replace major capital items in a scheme. This may include items such as common property fences, or carpets in a lobby. Sinking funds can then also be spent on any other reasonable expenses which should be reasonably met from capital, such a pool furniture.
Now that we know what you need to maintain in your scheme, lets look at how the funds in the sinking fund are raised.
The sinking fund is raised through three main avenues:
- Owners’ contributions to the sinking fund
- Interest received from the fund’s investments
- And money from insurance pay outs (for major or capital items which have been destroyed or damaged)
- The sinking fund levy (owner’s contribution), is often kept and administered by a Community Management company such as SSKB, on behalf of a Body Corporate.
If your strata scheme is looking for advice on what a sinking fund is, and how best to manage it, click here to contact StarBMS. We can provide you with expert advice and tailor it to the details of your individual scheme to ensure you get the best outcome.