One of the benefits of living in a Body Corporate is that each Owner contributes to the future upkeep of the property. It is important as an Owner, to understand your Body Corporate levies. In this article, we will share what makes up Body Corporate levies, how Sinking Funds and Administration Funds are financed, and how to budget for future expenses.
What makes up Body Corporate levies?
Your Body Corporate Committee set your levies based on the infrastructure and facilities within the scheme, maintenance requirements, age of the property and the future direction of asset management. These annual levies can be classified into the Administrative Fund and the Sinking Fund.
What is a Sinking Fund?
A Body Corporate’s Sinking Fund is effectively a deposit which exists to allow a Body Corporate to pay for repairs and maintenance of a building.
The money in a Sinking Fund can be spent on several different things. Firstly, it can be spent on anticipated capital expenditure, or non-recurrent items. In a large strata scheme, this often includes large or one-off items, such as painting the building or major structural repairs to common property. The Sinking Fund can also be used to replace major capital items in a scheme. This might include items such as common property fences, or carpets in a lobby. Sinking Funds can then also be spent on any other reasonable expenses which should be reasonably met from accumulated funds, such as pool furniture, BBQ’s, replacement roller doors to garage etc.
How is the Sinking Fund financed?
The Sinking Fund levy (Owner’s contribution), is often administered by a Community Management company such as SSKB, on behalf of a Body Corporate. The Sinking Fund is raised through three main avenues (refer to the image below):
How is regular maintenance of Common Property funded?
The Body Corporate are required to raise an Administration Fund. This is used for regular maintenance of common property, such as gardens, as well as insurance charges, and administrative expenses – including electricity, repairs and maintenance, and third party service providers. Money cannot be transferred between the sinking fund and the Administrative Fund, and vice versa.
When is a Sinking Fund Budget prepared?
Every financial year, Body Corporate Committees must prepare a Sinking Fund budget. This is to ensure the sinking fund has sufficient finances to provide necessary and reasonable spending for the upcoming financial year. In Queensland, it is also necessary to ensure an amount is reserved to cover likely future spending for at least 9 years after the current financial year. Building up funds reduces the likelihood of having to ask Lot Owners to make a large, one-off payment to Sinking Fund levies via a special levy– although it does not totally remove the possibility of this occurring.
How is a proposed Sinking Fund budget distributed?
A proposed Sinking Fund budget must accompany the Annual General Meeting notice when it is distributed to Lot Owners every year. After the Sinking Fund budget has been prepared, a Committee is able to determine what amount will be levied to Lot Owners for the Sinking Fund levy.
Plan for the future
Building up funds reduces the likelihood of having to ask Lot Owners to make a large, one-off payment to Sinking Fund levies via a special levy– although it does not totally remove the possibility of this occurring.
Planning begins with a Sinking Fund Forecast which identifies these big-ticket items, and:
- Their current condition;
- The estimated time before replacement or major repairs are necessary; and
- The estimated cost to replace or repair at that time.
SSKB has direct access to Star BMS who can arrange a 15-year Sinking Fund Forecast to give Committees an overview of future expenses. Our experts not only have the experience to identify and accurately calculate the costs of the future common area assets but also provide a program that details when these works ought to be scheduled, what works are required in which sequence so that later works do not damage earlier repairs.
To improve the value of your investment, it is imperative that you understand your Body Corporate levies. SSKB’s top tip – Make sure that your Sinking Fund Forecast accurately estimates future capital expenditure. At SSKB, we help make the entire process of being part of a Body Corporate as easy and seamless as possible for Lot Owners. Click here to make the switch to SSKB today.