Written by Anna Jayadeep
As an Owner in a strata complex you generally have two types of strata charges: sinking/reserve fund and maintenance/administration fund. Given the new Strata Legislation changes and the need for a complex to establish one, you might be asking what the former is.
In real estate parlance, a sinking/reserve fund is an amount of money that the owners of the complex set apart to cover long term structural costs as well as to cover unexpected emergencies. Owners must establish a reserve fund for the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature.
Strata Administration Levy
The levy most Owners are aware of is the administration charge, which is a regular fee that the owners of strata complex have to pay to cover the cost of maintaining the general upkeep of shared facilities such as cleaning, gardening, insurance, strata manager fees, repairing plumbing or electrical faults in the common areas, and much more. As these types of jobs involve common property, the cost of repairing them cannot be imposed on a single owner and are budgeted annually and paid out of the administration fund accounts.
Strata Reserve/Sinking Levy
The passing of the Strata Titles Amendment Act 2018 in late 2018 and the drafting of the impending regulation in late 2019 has brought sinking/reserve funds come to the fore. The changes in the Act will include owners establishing a mandatory reserve fund and maintenance plan in order to cover the cost of future major capital works. It is a wise idea to ensure that the sinking fund contains sufficient money to finance any medium to long term major repairs or renovations to the complex. The requirement of a maintenance plan has been introduced so Owners are more aware of future works and their costs, as an example, these can include;
Overhaul or replacement of lifts
Painting of the building
Repairing the common property on the exterior and interior of the building. This includes guttering, roofing, replacing light fittings, and repairing or replacing worn-out carpets, etc.
Any emergency expense that might arise
What an Individual Lot Owner Contributes
The cost of the fund or the size of the levy you pay depends on the size, age and complexity of the common area of the complex. Swimming pools, lifts, spas, gyms and recreation rooms are all considered as common area and can heavily impact on the strata levy amounts paid. The total budgeted cost for routine items (admin fund) and long-term works (reserve fund) is divided by the unit entitlement allocated to each lot on the strata plan (it’s a common misconception that lots share costs evenly). In simple terms, each lot owner is expected to contribute proportionately to her or his share of the complex based on the entitlement given to their lot.
Where are the Funds Held?
The sum paid by the owners is put in a bank account (if managed by a Licensed Real Estate Agent then it’s held in a regulated Trust account) and serves as a dependable source of funds for managing the routine and capital expenditures of the apartment. This fund is further divided into two different categories: The sinking fund and the administration fund. On the one hand, the latter is needed to cover the expenditure of budgeted repairs, required insurances, as well as to pay for ongoing maintenance costs such as gardening, lawn mowing, etc. On the other hand, the former is required to cover the costs of emergency repairs or major capital work.
Given the sinking or reserve funds are not needed on an everyday basis, when large amounts are accumulated in a sinking / reserve fund they can be deposited in an interest bearing account / term deposit to accumulate interest.
Do You Need a Strata Professional?
Do you have any questions relating to your strata complex? It’s important given the changes in the Act in WA, that Perth residents consult a professional strata management company. Empire Estate Agents are happy to assist with your residential, commercial, mixed-use or industrial complex.
Empire has an experienced, award-winning, licensed and top-rated team of strata managers in Perth. Would you like a free review / assessment of your strata complex or find out more about the new Strata Titles Act? Contact us today on (08) 9262 0400 for all of your strata complex questions or problems or fill in the online form and we will be in touch.
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