Queensland Body Corporate Sinking Fund
Queensland Bodies Corporate (excluding the Two Lot regulation) are required to maintain a sinking fund. The financial assets of a Body Corporate comprise the Sinking Fund monies and the Administration Fund monies. These funds must be administered separately for financial accounting purposes. However, it is not necessary to maintain two bank accounts. The funds in the sinking fund can only be used for the purpose of asset replacement and renewal.
When should assets be replaced?
For people who own their own house, asset replacement is happening all the time. Houses are repainted; gutters are replaced; roofs are retiled. For Bodies Corporate, it is the same process. Except that the legislation requires that you put away savings regularly in preparation for the asset replacement activity. The lot owners then need to agree to take action. This usually needs to be agreed at an AGM or EGM since the expenditure is likely to be substantial.
How is the sinking fund contributions determined?
The legislation requires a Body Corporate to prepare and maintain a Sinking Fund Forecast that looks at the expected asset replacement/renewal activities over the next ten years. From that forecast, regular levy contributions for the Sinking Fund can be determined so as to meet the future fund obligations.
The committee can determine their own sinking fund forecast. Alternatively, a forecast can be prepared professionally by companies that specialises in this activity.
Common Sinking Fund Items
Here is a list of common sinking fund replacement events for a typical small Body Corporate –
- Painting (Doors, garage doors, external walls, guttering, soffits, downpipes, balustrades, fences)
- Patching and rendering repairs
- Gutter, downpipes, roof and fascia replacement
- Mailbox replacement
- Electrical switchboard maintenance
- Driveway repairs
- Fence and balustrade replacement
- Landscaping refurbishment
Why should I agree to these activities?
For those lot owners who live in their unit; maintaining a building and grounds that looks attractive is important. Investment owners may not be so concerned but this is often short sighted. Attracting a tenant or buyer for your unit can be difficult if the building and grounds look in poor repair. The flip side of accepting a reduced rent or unit price can be a more expensive option that completing the asset replacement and renewal activities in a timely manner.
Duplexes, Townhouses and Standard Format Plans
The prior discussion is applicable to Bodies Corporate that have been developed using a Building Format Plan. Duplexes and Townhouses are sometimes developed using a Standard Format Plan. In these cases, the maintenance of each lot is mostly the sole responsibility of the lot owner and not the Body Corporate. Additionally, exclusive use areas are often designated to each lot and there is little or none non-designated common property. It is usual for this exclusive use area to also be the repair and maintenance responsibility of the lot owner associated with the exclusive use area. Consequently, the sinking fund for Duplexes and Town houses (with no common areas and a Standard Format Plan) have only a small future sinking fund allocation requirement for such items as perimeter fencing, shared guttering and shared utilities.
Tracsafe can help
Tracsafe’s DIY-BC software includes support for recording your sinking fund forecast; generating sinking fund instalments; recording sinking fund expenses; and creating financial year end sinking fund accounts.