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Sinking Fund

An Owners Corporation has a responsibility to maintain and repair common property, as defined by Section 62 of the Strata Schemes Management Act 1996.

An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

An owners corporation must renew or replace any fixtures or fittings comprised in the common property and any personal property vested in the owners corporation.

This clause does not apply to a particular item of property if the owners corporation determines by special resolution that:
1. it is inappropriate to maintain, renew, replace or repair the property, and
2. its decision will not affect the safety of any building, structure or common property in the strata scheme or detract from the appearance of any property in the strata scheme.
  To ensure schemes have adequately budgeted to meet current and future expenditure and to eliminate the need for special levies, NSW Government has introduced new legislative requirements.

To cover the costs of the repairs, Owners Corporations establish, what’s called, a sinking fund. The funds in this account cover the cost of future capital expenses such as painting, driveway maintenance, replacement of carpets, roofing, guttering and lift overhauls.

There is legislation requiring Owners Corporations to not only establish a sinking fund but to develop a 10-year plan of how the money will be allocated.

Sinking Fund plans were first introduced into legislation in April 2006, with changes made to the Act in July 2009. Section 75A of the Strata Schemes Management Act 1996 has the relevant clause.

75A Owners Corporation to prepare 10-year sinking fund plans

This section applies to owners corporations established on or after the commencement of this section.

An owners corporation to which this section applies is to prepare a plan of anticipated major expenditure to be met from the sinking fund over the 10-year period commencing on the first annual general meeting of the owners corporation.

The initial plan is to be finalised by the end of the second annual general meeting of the owners corporation.

The plan is to be reviewed and (if necessary) adjusted no later than at the fifth annual general meeting of the owners corporation.

An owners corporation to which this section applies is to prepare a plan as referred to in subsection (2) for each 10-year period following the period referred to in that subsection and is to finalise and review the plan in accordance with the requirements of subsections (3) and (4) at the corresponding annual general meetings in the relevant 10-year period.

An owners corporation may engage expert assistance in the preparation of a plan under this section.

The regulations may extend the operation of this section to all owners corporations or to such classes of owners corporations established before the commencement of this section as are specified in the regulations.

A regulation referred to in subsection (7) may make necessary modifications to the application of any provision of this section to an owners corporation established before the commencement of this section.

According to the Department of Fair Trading website, the change introduced in 2009 means that all, “Owners Corporations must plan how they will repair and maintain common property and raise sufficient funds to cover the costs. The amount required for the 10-year plan will vary between schemes, for instance, newer schemes may require relatively less money than the plans for older schemes with more repair work due. Each sinking fund plan should reflect the individual needs of its scheme.”

Owners Corporation may develop the plan themselves or enlist the help from experts. The 10-year plan must be approved at an AGM and reviewed within the first five years.

The aim of the new provision is to ensure owners corporations better plan their finances to minimise the risk of having insufficient funds when, for instance, expensive building repairs need to be carried out.

If you need advice regarding your sinking fund, please call your dedicated Strata Manager at The Strata Agency.

Next Article: Sinking Fund Plans Updates