Question: Does a sinking fund forecast have to be done every five years, and does it have to be done professionally?
Answer: If a genie from a magic strata lamp granted me just one strata wish, it might be to make recommended sinking fund contributions obligatory.
The technical definition for the requirement of maintaining an up to date sinking fund plan is that a body corporate needs to budget for major capital spending for the current financial year and the next nine years.
As most professional sinking fund plans are based on a 15-year projection, it has become a somewhat incorrect industry shorthand to say the plans are required to be renewed every five years when these professional plans stop meeting the requirements of the legislation.
However, there is no requirement to have a professional plan, and there is nothing to stop a body corporate, say, drafting a new 10 year or 11 year plan itself every year or every other year to keep within the boundaries of the legislation.
People might question whether it is good for owners to draft their own plans. That’s up to the scheme to decide, and I can see an argument in favour of this for very small schemes. However, even if a scheme has a professional sinking fund plan, owners aren’t obliged to follow it, and many schemes, perhaps most, don’t. So you might say that if your scheme is not really intending to follow the recommendations of a professional sinking fund plan, there may not be much point in having a professional draft one up.
That said, my empirical observation is that schemes that have professional plans drafted and that follow at least the recommendations for raising funds tend to be much better maintained and happier schemes over the years. Yes, those owners may pay a bit more in levies on a quarter to quarter basis, but the environment of their complex tends to be better, rent yields and sales prices are higher and the owners are more satisfied. If a genie from a magic strata lamp granted me just one strata wish it might be to make recommended sinking fund contributions obligatory.
See the BCCM website for more details on sinking funds: Sinking fund
This post appears in the October 2024 edition of The QLD Strata Magazine.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
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