Question: Is there a percentage value that a sinking fund needs to be and if so what is the percentage? I realise it may vary depending on the site and available facilities.
Is there a percentage value that a sinking fund needs to be per building and if so what is the percentage? I realise it may vary depending on the site and available facilities of the complex but just an approximate idea would be helpful.
Also does the age of the apartment determine any factors of the sinking fund.
Answer: Rather than a percentage, we would expect the minimum balance of a sinking fund to be approx. $1500-$2000 per lot.
A Sinking Fund Forecast is the basis for a Body Corporate Manager and a committee determining the appropriate sinking fund annual levy. This is not often looked at as a percentage of any particular expense, rather a levy that is calculated based on predicted capital expenses for the coming years. Most Sinking Fund Forecasts cover a 15-year timeline of expenses and with this, levies are advised to increase in readiness for future year expenses as needed. This of course will vary depending on how maintenance-heavy the building/ scheme is. For example, a standard format plan would typically require less maintenance than a building format plan as each owner is responsible for the building and surrounds within their own lot. A building format plan has periods of high maintenance including painting of all surfaces, roof replacement and lift replacements etc. Similarly, an older building is likely to have higher maintenance costs as the building materials in this construction are further through their lifecycle, leading to replacement.
In terms of a percentage value of the scheme, no there is no requirement or guide for how much the balance of a sinking fund should be in relation to the value of your scheme. It is entirely maintenance based.
As a typical guide, rather than a percentage, we would expect the minimum balance of a sinking fund to be approx. $1500-$2000 per lot. For example, a 10 lot scheme would have a healthy sinking fund if they had a minimum balance of $20,000. Having worked with thousands of managers around the country, setting up a new scheme, most would advise this is a suitable balance per lot.
If you are unsure of how well funded your scheme currently is or if you are perhaps paying more towards a sinking fund than necessary, the first step is to get an updated sinking fund forecast and let a professional provide a report for you.
This post appears in Strata News #528.
Dakota Panetta Solutions in Engineering E: dakotap@solutionsinengineering.com P: 1300 136 036