{"menuItems":[{"label":"What is a sinking fund?","anchorName":"#what-is-a-sinking-fund"},{"label":"What expenses can sinking funds cover?","anchorName":"#what-expenses-can-sinking-funds-cover"},{"label":"Are there any legal requirements around sinking funds?>","anchorName":"#are-there-any-legal-requirements-around-sinking-funds"},{"label":"Important information about sinking funds","anchorName":"#important-information-about-sinking-funds"},{"label":"Check out these home loans and apply today","anchorName":"#check-out-these-home-loans-and-apply-today"}]}
In a strata building like a townhouse or apartment complex, the owners need to spend money on maintaining and repairing common property. This includes areas of a complex used by everyone, like a car park or elevator. The money used for this is called a sinking fund.
If you're buying a strata property, check that the sinking fund includes enough money to finance any renovations or repairs.
What is a sinking fund?
A sinking fund is designed to help owners’ corporations of strata schemes accumulate the financial reserves they need to cover future capital expenditure. By regularly putting aside money in advance, a sinking fund ensures that property owners in a strata scheme don’t have to pay large, one-off levies whenever an expensive emergency cost arises.
Property owners in a strata scheme must pay regular levies. These levies go towards two areas:
An administration fund. This fund is used to cover the cost of strata insurance, budgeted repairs, and to pay contractors to perform ongoing maintenance tasks (lawn mowing, gardening etc.)
A sinking fund. The money in a sinking fund is used to cover the cost of major capital works or emergency repairs.
Depending on where you live around Australia, a sinking fund may also be referred to as a maintenance plan or a capital works fund. These funds ensure that your building functions correctly and always looks in the best possible condition, both of which are important considerations for both owner-occupiers and investors.
Finally, sinking funds also ensure that the financial burden for funding capital works and repairs is shared fairly and equitably among all owners in a strata scheme.
What expenses can sinking funds cover?
Sinking funds are much like a “rainy day fund” or savings plan for strata schemes. They ensure that when major capital works are required or emergency repairs need to be made to communal areas, the owners’ corporation has a sufficient capital reserve to draw from.
Sinking funds can be used to cover expenses such as:
Painting of the building
Overhaul of lifts
Driveway refurbishment
Replacement of fencing
Replacing common property on the interior and exterior of the building, including carpets, roofing and guttering
Any emergency expenses that may arise
Are there any legal requirements around sinking funds?>
Not only do sinking funds represent good financial planning for owners’ corporations, but they’re also a legal requirement for strata schemes around Australia. Since July of 2009, all Australian strata schemes are required by law to have a 10-year sinking fund plan in place. These 10-year plans must also be in place for the life of the scheme, and the owners’ corporation must demonstrate how it is going to cover the cost of repairing and maintaining the common parts of the property.
For example, for new strata schemes in NSW, the preparation of a 10-year plan of anticipated sinking fund expenditure must begin at the first Annual General Meeting (AGM) of the owners’ corporation and be completed by the second AGM. Reviews and adjustments to the plan are allowed, but these must be finalised by the fifth AGM.
Contribution requirements can then be levied on property owners in the strata scheme in line with the 10-year plan. For example, if the owners’ corporation anticipates that it will need $150,000 in a sinking fund over the next 10 years, it will need to levy $15,000 for each year. If there are 25 apartment owners in the strata scheme, each owner would therefore have to pay an annual levy of $600.
Important information about sinking funds
Keep the following tips and pieces of advice in mind when preparing or managing a sinking fund plan for your strata scheme:
Buying a property. If you’re considering buying a property in a strata building, ask whether the owners’ corporation has a long-term sinking fund plan or maintenance plan in place. Is the plan reviewed regularly to ensure that it remains up to date with changing circumstances? A well-managed building will most likely have a detailed and accurate sinking fund plan in place.
Using the funds. If you have a project you think should be financed by the money in your strata scheme’s sinking fund, you will need to go through an approval process. In many cases, this will need to be put to the vote at an owners’ corporation AGM or extraordinary general meeting.
Insufficient funds. If there is not enough money in the sinking fund to cover the cost of a project, a special levy may need to be raised. You will need to have support from the majority of owners and the corporation’s executive committee for this to occur.
Older buildings are more expensive. As a general rule, the sinking fund for an older building will need to be larger than the fund for a modern building. This is because older buildings are more likely to need expensive repairs or works to update or upgrade facilities.
Getting a plan prepared. If you own a lot in a strata scheme but the owners’ corporation does not have a 10-year sinking fund plan in place, you can apply to the tribunal in your state or territory that handles consumer and trader disputes. The owners’ corporation will then be issued with an order instructing it to meet its legal obligations.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
The question of whether to build or buy is a tough one and comes down to individual preferences. We provide a data-backed answer about what's cheapest.
A property's market value helps determine how much it could sell for while a bank valuation helps a lender determine its risks, and the two values can be very different.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn't a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you're unsure about anything, seek professional advice before you apply for any product or commit to any plan and read any disclosure documents (such as any Target Market Determination (TMD) and/or Product Disclosure Statement (PDS)) issued by the provider before making a decision.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
