What is a Maintenance Fund:
An Owners Corporation’s Maintenance Fund is effectively a “savings account” which exists to allow an Owners Corporation to pay for major repairs and maintenance of a building, in accordance with the scheme’s Maintenance Plan.
Who is the Maintenance Plan prepared by and how is it prepared?
A quantity surveyor typically prepares the Maintenance Plan.
A Maintenance Plan includes an anticipated timeframe for the capital improvement and replacements for the scheme. An example is the exterior building painting in 10 years. The forecast will anticipate costs, its timeframes, inflation and any potential increases to produce a cash-flow recommendation. You can utilize this information to predict the suggested levy amounts needed each year for the Maintenance Fund in order to meet the forecasted costs.
Why do you need a Maintenance Fund?
One of the benefits of living in an Owners Corporation is the fact that everyone contributes to the future upkeep of the property.
This is done through regular savings and those savings are held in the Maintenance Fund.
What can a Maintenance Fund be spent on?
You can allocate the funds in a Maintenance Fund towards various purposes. 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. This includes things such as painting the building or major structural repairs to common property. The Maintenance Fund can also be used to replace major capital items in a scheme, such as a Hot Water System, or Lift.
Maintenance Funds can then also be spent on any other reasonable expenses which should be reasonably met from capital and that are listed in the Maintenance Plan.
How is the Maintenace Fund raised:
The Maintenance Fund is raised through three main avenues:
- Owners’ contributions to the Maintenance Fund
- Interest received from the fund’s investments
- And money from insurance pay outs (for major or capital items which have been destroyed or damaged)
The Owners Corporation Management company, such as SSKB, often manages and administers the Maintenance Fund levy (Owner’s contribution) on behalf of the Owners Corporation.
Certain strata schemes must have a 10-year Maintenance Plan, and there must be enough money in the Maintenance Fund to cover the proposed maintenance in the plan.
How long should the Owners Corporation Maintenace Plan be?
As a rule of thumb there is a 10-year rule.
As an absolute minimum the Maintenace Plan should be forecasting to cover 10 years’ worth of anticipated costs. This allows the Owners Corporation to identify, plan and save for these future expenses.
When should the Maintenance Plan be reviewed?
Typically, Maintenance Plans undergo review every 5 years. A quantity surveyor will normally prepare a 15-year plan to cover for this period.
When should a Maintenace Plan be reviewed early?
A Maintenance Plan may undergo early review due to two reasons. These reasons are:
1.After a cost variance on major expenditure
Unsurprisingly, the anticipated cost of a project can deviate from the Maintenance Plan’s anticipated budget. A quantity surveyor will provide an estimation to set the Maintenance Fund however project costs can change as they are variable depending on costs and expenses fluctuating. If project costs come in over budget, money can be taken out of funds allocated for other projects. This can negatively impact the fund balance.
Any fluctuations in budget can throw the maintenance fund off track for the remaining period of the forecast.
To maintain the utmost accuracy of the Maintenance Fund, the quantity surveyor can complete an updated Maintenance Plan by considering a more realistic cost of the projects, followed by the recalculation of levies. This is called a ‘review’ of the Maintenance Plan instead a new forecast. This report is usually offered at a cheaper price than the full report.
2.When Committee deems necessary
A Committee can choose to review or replace a Maintenance Plan at any time. Although it can seem to be an unnecessary expense but with natural and economic conflict it can be a highly beneficial.
Where can I find the Legislation on Owners Corporation Maintenance Fund Forecast?
VIC Legislation-
- Check out the legislation here.
If your strata scheme is looking for advice on what a Maintenance 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.
If you are not a client of SSKB and would like to see how easy it is to make the switch, click here to contact us for an obligation free consultation.
