An owners corporation’s capital works fund is effectively a deposit which exists to allow an OC to pay for repairs and maintenance of a building.
The money in a capital works 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 capital works 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. Capital works funds can then also be spent on any other reasonable expenses which should be reasonably met from capital, such as pool furniture.
The capital works fund is raised through three main avenues:
The capital works fund levy (owner’s contribution), is often kept and administered by a Community Management company such as SSKB, on behalf of an owners corporation.
Owners corporations are also 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 secretarial fees and postage. Money cannot be transferred between the capital works fund and the administrative fund, and vice versa.
A 10-year capital works fund plan must be created at the first Annual General Meeting (AGM) of the Owners corporation, and is to be completed by the second AGM. This plan can be reviewed and adjusted by no later than the fifth AGM. The aim of having a 10 year capital works fund plan is to assist in building up sufficient financial reserves so expensive capital expenditure can be paid off when required. This means owners will not have to be asked to make a large, one-off payment to capital works fund levies.
Payments from the capital works fund for repairs or major expenditure can only be made if there is either a written request for payment in the form of a tax invoice, or written evidence of payment, including a receipt. All payments from the capital works fund must be made from the financial institution account.
Owners corporations may ask SSKB or Star BMS to prepare a capital works fund forecast for it, or have a committee or lot owner estimate the likely spending requirements.
If your strata scheme is looking for advice on what a capital works fund is, and how best to manage it, talk to SSKB. We can provide you with expert advice and tailor it to the details of your individual scheme to ensure you get the best outcome.