Every strata community relies on two main funds to operate effectively: the Administrative Fund and the Sinking Fund. They serve different purposes, but both are essential in keeping a scheme financially healthy.
The Administrative Fund: Covering Day-to-Day Costs
The Administrative Fund is the community’s everyday account. It pays for routine, short-term expenses that keep the property running smoothly. This includes cleaning, gardening, insurance premiums, utilities for common areas, minor repairs, and management fees.
Without this fund, essential services would quickly come to a halt, making it impossible to maintain the standards owners and residents expect.
The Sinking Fund: Preparing for the Long Term
The Sinking Fund is all about planning ahead. It covers major, non-routine works that are expected over the life of the building, such as roof replacement, repainting, structural repairs, or upgrading shared facilities like lifts or pools.
Contributions to this fund build up over time, creating a pool of money ready for when large projects arise. This approach helps avoid sudden special levies or financial stress when expensive but necessary work needs to be done. A sinking fund forecast is essential to guide these contributions, ensuring there is enough set aside to meet future costs.
Why the Difference Matters
Confusing or mixing up these two funds can cause real problems. If money from the Administrative Fund is spent on long-term capital works, there may not be enough left to pay for everyday services like cleaning and insurance. On the other hand, neglecting the Sinking Fund means the community risks being unprepared for costly projects, forcing owners to pay unexpected lump sums.
A well-balanced approach ensures the building remains functional in the present while also being financially prepared for the future.
Helpful Tips for Committees and Owners
1. Keep funds separate and clear
Never use the Administrative Fund for long-term projects or vice versa. Clear accounting avoids confusion and keeps the scheme compliant.
2. Review budgets regularly
Annual budgets should include realistic estimates for both funds. This helps ensure day-to-day costs are covered and that contributions to long-term projects remain on track.
3. Link the Sinking Fund to a 10-year plan
Using a 10-year maintenance plan (often known as a Sinking Fund Forecast) as a guide ensures contributions are set at the right level to meet future obligations. This reduces the risk of sudden levy increases or special levies.
FAQs About Strata Funds
Are both funds required by law?
In most states, yes. Legislation typically requires schemes to maintain both funds, though the exact rules can vary.
Can money be transferred between funds?
No — funds must be used for their intended purpose. Some legislation allows transfers in special circumstances, but this usually requires approval from the owners at a general meeting.
What happens if our Sinking Fund is underfunded?
The community may need to raise a special levy or take out a Strata loan to cover the shortfall. This can put sudden financial pressure on owners, which is why long-term planning is so important.
How are contributions to each fund decided?
Contributions are set at the AGM based on proposed budgets. Committees, with input from managers and sometimes professional consultants, recommend amounts that owners vote to approve.
The Administrative Fund keeps the lights on today, while the Sinking Fund ensures the building is ready for tomorrow. Both need careful planning and regular contributions to protect the value of the property and the financial wellbeing of all owners.