How Does a Sinking Fund Help Maintain Your Strata Building?

Jan 24, 2022

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The owners of a strata building, such as a townhouse or apartment complex, are responsible for maintaining and repairing common property areas. This includes public areas of a facility, such as a parking lot or an elevator. 

Related: Strata Management Perth

The funds for such works are included in 2 types of strata charges: maintenance/administration fund and sinking/reserve fund. Continue reading to find out more about the two:

Strata Administration Levy

Most property owners are familiar with the administration charge. It is a recurring fee that strata complex owners must pay to cover the costs of general upkeep of shared amenities such as repairing electrical faults or plumbing in common areas, strata manager fees, insurance, gardening, cleaning, and so on. 

The expense of repairing these types of jobs cannot be placed on a single owner because they involve common property. As such, the fee is budgeted annually and paid out of the administration fund accounts.

Strata Reserve / Sinking Levy

Sinking/reserve funds became more prominent after the enactment of the Strata Titles Amendment Act 2018 in late 2018. The law was enforced in 2019 and since then, state owners are required to develop a mandated reserve fund and maintenance plan to pay the cost of future significant capital works.

Granted, it’s a good idea to make sure the sinking fund has enough money to cover any major repairs or improvements to the complex in the medium to long term. Some of these major repairs include:

  • Replacements and overhauling of lifts need to be overhauled or replaced.
  • Building Repainting
  • Fencing replacements
  • Driveway resurfacing
  • Exterior and interior refurbishments: Lighting, roofing, etc
  • Any significant unexpected costs

What Does an Individual Lot Owner Contribute?

The cost of the fund, or the amount of the levy you pay, is determined by the age, size, and complexity of the complex’s common space. Swimming pools, leisure rooms, gyms, spas, and elevators, are all considered common areas that have a significant impact on the amount of strata levy paid. 

The management team prepares a comprehensive budget for regular maintenance tasks (admin fund) and long-term works (reserve fund) after which they divide the total by the unit entitlement assigned to each lot on the strata plan. Contrary to what people believe,  lots do not share costs equally but proportionally. To put it another way, each lot owner is expected to contribute proportionately to her or his share of the complex depending on the right granted to their lot.

Where Are These Funds Held?

The amount paid by the owners is deposited into a bank account (or a regulated Trust account if the property is handled by a Licensed Real Estate Agent). This serves as a reliable source of cash for managing the apartment’s regular and capital expenditures. Because sinking funds aren’t used regularly, substantial sums can be stored in an interest-bearing account or term deposit to earn interest.

Contact Home2Home To Know More About Strata Management

Do you have any concerns about your strata community? Given the modifications to the Act in WA, Perth residents must seek the advice of a professional strata management business. Luckily, you don’t have to worry about that. We are a highly-regarded, licensed, and professional strata management team in Perth. Contact Home2Home on 08 9330 9245 (Mt Pleasant) or 08 9591 3328 (Rockingham).

Property is about people – that’s why our focus is you and that’s why we care.

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