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Compulsory Sinking Fund Plans - How your scheme will be affected
Introduction
New sinking fund laws have just been announced by the NSW Government, commencing from 1st July 2006. The Strata Schemes Management Amendment (Sinking Funds) Regulation 2006 will have a major impact on the budgeting provisions and levy contributions for almost every strata scheme in NSW.
What are the new requirements?
One of the prime responsibilities imposed on every Owners Corporation / Body Corporate is providing adequate funding for the future maintenance, major capital expenditure and replacement needs for their scheme, for example;
• Repainting of common areas
• Re-carpeting of common areas
• Replacement of fencing, roofing, windows and gutters etc
• Replacement of appliances such as lifts, pumps, automatic gates, common hot water systems, common air-conditioning systems, fire sprinkler systems etc
• Replacement of contents such as common furniture, paintings and fire extinguishers,
• Garden refurbishment, re-mulching, replacing dead plants, etc
• Replacement of plumbing, electrical wiring and building refurbishment
To achieve this, the Act requires an Owners Corporation to establish a ‘sinking fund’ to provide for such maintenance. Whilst this provision has always been in place, the Act did not stipulate how thorough the budgeting the sinking fund was to be. As such until now the realistic long term maintenance needs of most strata properties have been sacrificed on the altar of keeping the levy contributions to a minimum.
Aside from this, dramatic cost escalations will be experienced as tough new Occupational Health & Safety laws impact upon building maintenance and repair works. Without adequate contributions to provide for the future maintenance of strata buildings they will either fall into decay & and become the slums of the future or they will impose huge financial burdens upon their owners.
The new legislation seeks to enforce sensible financial management on virtually every Owners Corporation (Body Corporate) by requiring owners to prepare a detailed plan of expected sinking fund expenditure for their scheme for a 10 year period, with the plan being reviewed on the 5th year, then renewed for each subsequent 10 year period for the life of the building. Some 2 lot schemes will be exempt.
When do the new requirements commence?
The legislation is an extension of the provisions outlined in the Strata Schemes Management Amendment Act 2004 which requires all new schemes (registered from 7 Feb 2005) to prepare a 10 year sinking fund plan. It will commence for all schemes over the next few years according to their date of registration as follows;
• Strata Plan 50,000 and above from 1 July 2006
• Strata Plan 30,000 to 49,999 from 1 July 2007
• Strata Plan 10,000 to 29,999 from 1 July 2008
• Strata Plan 1 to 9,999 from 1 July 2009
Disclaimer & Important Note: Whilst every effort has been made to ensure this document is correct, this documentation does not constitute legal advice. Viewers are advised to seek the own professional advice and refer to the relevant legislation.