Capital Works or Sinking Fund Plan

 

Why do I need a Capital Works or Sinking Fund Plan?

An Owners Corporation must prepare a 10 year Capital Works or Sinking Fund Plan (reviewed every 5 years) as required by the relevant legislation (in NSW under the Strata Schemes Management Act 2015, in ACT the Unit Titles (Management) Act 2011, or Maintenance Plans in Victoria under the Owners Corporation Act). This enables the ‘OC’ to plan for the cost of maintaining common property in their Strata Scheme by raising appropriate reserve funds to cover necessary expenditure.

Capital Works or Sinking Fund Plans

We specialise in and are passionate about providing 10 Year and 15 year Capital Works or Sinking Fund Plans and Maintenance Fund Plans which are compliant with s80 of the Strata Schemes Management Act 2015, s82 of the Unit Titles (Management) Act 2011, s36 of the Owners Corporations Act 2006.

Our Capital Works or Sinking Fund Plans are practical and are set out in:

  • Easy To Read Reports
  • Owners Corporation obligations
  • 10 Year Capital Works or Sinking Fund Plans are required by legislation and are to be reviewed at least each five years.

The purpose of a Capital Works or Sinking Fund Plan is to determine the amount to be set aside each year to meet expenses of a capital nature. These include the replacement, renewal, or repair of both minor and major capital items such as windows, fencing, concrete paths, painting of buildings, amongst many other things.

The benefit of obtaining a Capital Works or Sinking Fund Plan is to provide for a pool of funds to be easily applied to maintain the appearance and the quality of the improvements contained within the strata scheme, and thereby assisting the Owners Corporation to meet their legal obligations.

There is a strict Duty of Care to repair and maintain common property, and in particular to ensure that the common property is safe for owners and their visitors. (See s106 of the Strata Schemes Management Act 2015, s24 of the Unit Titles (Management) Act 2011, s46 of the Owners Corporations Act 2006.

In addition, there is the Common Law Duty of Care to all visitors and owners to ensure that the property is safe for any person. These provisions are usually set out under the respective Civil Liability Act 2002 (NSW), the Wrongs Act 1958 (Victoria), or the Civil Law (Wrongs) Act 2002 (ACT).

Ordering a Capital Works or Sinking Fund Plan

Once we receive an order for a Capital Works or Sinking Fund Plan we will

  • inspect the subject property and identify likely items requiring repair, renewal, replacement or maintenance within and beyond 10 years.
  • provide the Owners Corporation with the opportunity to include additional items that they would like. For example, earlier renewal of landscaping, upgrading of any other common areas such as building a BBQ area, or kids playground or gym.
  • Analyse, prepare and issue the 10 year Capital Works or Sinking Fund Forecast with the recommended capital works or sinking fund amount to be set aside each year, the total amount to be expended throughout the 10 year term, including an allowance for the escalation of construction costs, and the likely timeframe for the maintenance or replacement of each item.
  • take photos of relevant replacement or maintenance items.
  • ensure that the 10 year Capital Works or Sinking Fund Forecast will be carried out by a Registered Valuer without limitation.

NSW – Strict duty to repair and maintain common property

For example, in NSW the current legislative framework requires compliance with

  • Section 106 of the Strata Schemes Management Act 2015 require that 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.
  • Section 80 of the Strata Schemes Management Act 2015 provides the mechanism by way of creating and maintaining a capital works or sinking fund to have sufficient funds available to meet the OC's obligations under s106.
  • The plan is to be reviewed at least each 5 years and, if necessary, adjusted.

Reviews - Best approach

  • Recommend a review within 5 years from the date of the last plan, or the date of the required compliance
  • Obtain a new report with a new site inspection
  • Consider any variation to the existing annual sinking fund contributions
  • It is similar to reviewing a budget to adjust and fine tune the savings for the Owners Corporation

Points of consideration

  • Independent unbiased advice
  • Avoid unnecessary Special Levies
  • User pays
  • A fairer system
  • Adds value - building well maintained and large Sinking Fund balance
  • Legal requirement to maintain common property
  • Good practice
  • Saves owners and strata managers time
  • Professionally carried out
  • Risk Transfer - we have $5M Professional Indemnity insurance for the Sinking Fund Plan
  • Addresses latent and unforseen costs

Goal of a Capital Works or Sinking Fund Plan

  • To simply determine the amount to be set aside each year

What a Capital Works or Sinking Fund Plan is NOT

  • Not a detailed quote for every single item, for replacement, renewal or repair
  • Not a highly accurate assessment for the cost and time frame
  • Not a Dilapidation Report
  • Not a Maintenance Schedule
  • Not an opportunity for the owners to get free building, fire or safety advice

Final points to consider

  • Legislation: strict duty to repair and maintain common property
  • Aging population on fixed incomes
  • No ability to comply without adequate funds
  • Potential increase in safety and litigation issues (and potentially no insurance)
  • Resistance to set money aside may present a difficult management situation

Risk Management

Appropriate funding may prevent the owners from breaching their strict statutory obligation to repair and maintain common property, and prevent the owners from incurring unnecessary costs and penalties as occurred in ‘Seiwa Australia Pty limited v Owners SP35042 [2006] NSWSC 1157’ and ‘Nicita v Owners SP64837 [2010] NSWSC 68’.

Further Services

In addition to carrying out Capital Works Fund Plans or Sinking Fund Plans, Reserve Fund Plans and Maintenance Fund Plans, we also assess and prepare Asbestos Registers and Asbestos Management Plans, Work Health and Safety Reports including 'Common Law Duty of Care' Reports (WH&S and OH&S), Building Insurance Valuations, and Common Property Repair and Maintenance Reports.

Turnaround time and fees

Our normal turnaround time is around 3 to 7 business days, and we will beat any competitors written quote by 12%.

 
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