This is a Q&A from a WA Lot Owner why make a reserve fund compulsory has been provided by David Chokolich, HFM Asset Management.
Question: I’m questioning why they would introduce a 10 year maintenance plan and make a reserve fund compulsory. There’s no link between the two.
I’m questioning why they would introduce a 10 year maintenance plan and make a reserve fund compulsory. There’s no link between the two. The new changes do not give any benchmark for how much a strata company should raise as a reserve fund.
Also, when does the 10 year plan have to be in place and do the funds need to be saved into a separate fund?
Answer: I don’t think you’re going to be able to have one without the other.
I have exactly the same question. I’m not too sure why. Yes, I don’t believe that the new regulations actually stipulate how much you need to keep in there as a minimum. This will be something where, if someone asks to see the records and they see that your reserve fund forecast is showing that you need to spend $250,000 to update your lifts and you’ve got no money, people will be asking questions such as ‘Where are they going to get the money from? Is that going to mean a special collection that they’re going to have to do?’ So that will be a concern.
I don’t think you’re going to be able to have one without the other. It might all take a year or two before it washes through the system. I feel that the people who are purchasing are going to be the ones who are going to be driving this. If you’re looking at two strata schemes next door to each other and they look similar, but one seems to be better managed than the other, then that’s probably what’s going to drive it at the end of the day.
Regarding whether there needs to be a separate account, yes, I believe that there has to be a fund so a fund needs to be created ie. bank account or trust. As I said, my understanding is the regulations don’t stipulate how much money you need to keep in there but I guess in terms of the council of owners, they need to understand how they’re going to be able to get that money or get a loan or look at whatever options there might be to have that money available to them when they require it.
I’ve had people say to me, ‘why should I pay for a fund for a lift to be upgraded in 10 years time if I may not be there?’ but that same person is using the lift every day. So it sort of seems a bit silly, but these are the questions that I’m asked.
So yes, I believe the regulations don’t stipulate and aren’t clear on that. But I think something will happen to someone, and that’ll create precedence in the industry and then people will follow. So no doubt, lawyers will get involved and then everything will get messy after that.
This post appears in Strata News #416
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- WA: What, When, Where – Maintenance Plans
- WA: Strata Reform Seminar Session 2
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