This question came in from a QLD Lot Owner enquiring about average levies and the way to calculate the amount needed in the sinking fund. Thank you, Bob Boundy, Unit Owners Association of Queensland (UOAQ) for providing a response.
Question: For a building of 4 townhouses, what would the average levies be? How much should we have in the sinking fund?
For a block of 4 townhouses on a large battle axe block with no lifts, only an electric driveway gate, how much should be in the sinking fund and what should the levies be for a property of total value $2.5-$3million?
Answer: Levies do not have any direct relationship to the intrinsic value of property.
From a database sourced from audited financial statements of over 150 schemes, it is not easy taking an average, as we have schemes that range in sinking fund reserves from 3 Months up to 17 Years!
- Levies do not have any direct relationship to the intrinsic value of the property, and the land component is often the greatest value component of the site with the only costs relating to the improvements upon the land.
- A detailed capital budget needs to be drawn up for the sinking fund which covers off on the non recurrent / lumpy items relating to the common property such as painting, roof replacement, carpets, plumbing, electrical, fire protection, pool relining, paths and refurbishment of gardens, etc, based on a time frame for the expenditure being undertaken. It is suggested that there are far more items to be considered than just being limited to the only expenditure of an electric driveway? This is generally undertaken by a quantity surveyor skilled in accessing / estimating future costs over a longer time frame such as 10-15 years, which forms the basis of smoothing out annual sinking fund levies.
- It is unlikely that these skills are readily available from committee members to undertake to provide their own sinking fund levies.
- The need for special levies is generally evidence of poor skills or management in appropriately levying sinking funds to progressively store up future adequate value to smooth out these lumpy expenditures.
This post appears in Strata News #115.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
The photo associated with this post has been supplied by Flickr: littleyiye< - June 7