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A timely reminder to budget

When was the last time your sinking fund budget was reviewed? Because now would be timely given all things budgets are currently being reviewed.

Apart from 2-lot corporations, all community corporations must establish a sinking fund and make annual estimates of future spending for irregular maintenance or capital works. This is explained in Sections 113 and 116 of the Community Titles Act.

Strata and community corporations, other than small corporations of 6 or less lots, are required to prepare budgets for longer-term maintenance and capital works.

According to the SA Attorney-General’s Department, medium-sized corporations must prepare a 3-year sinking fund budget and review it every 3 years.

This legislation was effective from 28^th October 2013. If your corporation has between 7 and 20 lots and you haven’t planned or reviewed your budget, then you are overdue and action is required now.

For large corporations, of 20+ lots, a 5-year sinking fund budget for longer-term maintenance and capital works must be prepared then reviewed every 5 years.

Small corporations with 6 or less lots, and community corporations with common property insurance cover of $100,000 or less, are exempt from the requirement for these longer-term sinking fund budgets.

Sinking funds make good sense

Planning for the future is always a smart move. And corporations are no different. Apart from regular maintenance, there are two absolutes:

• All buildings will eventually require major non-recurrent works (usually from 15-50 years in the life of the building); and
• All the funds will be payable by the lot owners.

But what if the unexpected happens? It makes good sense to be prepared. And less stressful for all owners. Because how will you pay for expensive capital works? Realistically, you would have to pay by:

1. raising a special levy;
2. arranging a strata loan; or
3. utilising savings from a sinking fund.

Raising a special levy can place financial burden upon some owners, especially those on fixed incomes. Worst case scenario, some owners may need to sell their assets just to make the levy payment.

A Corporation can arrange an unsecured strata loan, to pay for works. ASCM has previously obtained loans from $40,000 up to $420,000 for clients who were undertaking significant structural works and building refurbishment. From our experience, clients have indicated that interest rates and repayments can be quite confronting.

The most effective method is to accumulate funds steadily over time via a sinking fund. The greater the accruals, the less the shortfall in reserves will be when the funds are required.

Consider the options

Don’t be overwhelmed with budgeting. One of the duties we perform, as your Body Corporate Manager, is to present these options to you for discussion at the AGM each year.

When it comes to preparing and budgeting for major works, we will work with lot owners, or seek professional help, to prepare a schedule of non-recurrent works required in the next 10 to 20 years. Then plan a budget to best cover these works.

ASCM. Working smarter for you.