Why you need a body corporate sinking fund

Why do you need a body corporate sinking fund?

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If you’re a property owner within a body corporate, you’ve likely encountered the term “sinking fund.” However, understanding the significance and why you need a body corporate sinking fund is essential. In this article, we’ll provide you with a comprehensive explanation of sinking funds and emphasise their vital role in maintaining your body corporate’s upkeep. 

What is a body corporate sinking fund?

A sinking fund serves as a dedicated savings account for a body corporate, specifically intended to accumulate funds over a period of time. These funds are reserved exclusively for capital expenditures, encompassing significant repairs, enhancements, and asset or infrastructure replacements. Examples of such expenses may involve repainting the building, resurfacing the driveway, refurbishing the pool or lift, and similar substantial endeavours. Essentially, a sinking fund acts as a financial reserve specifically designated for vital, one-time costs required to uphold the property’s maintenance. 

Why you need a sinking fund?

Having a sinking fund is crucial for the maintenance and improvement of the property. By allocating funds specifically for major repairs and replacements, the body corporate guarantees that the property stays in good condition.  

This practice enables effective planning and preparation for future needs, ensuring that there are sufficient funds available when significant expenses arise. Ultimately, a sinking fund allows for proactive management, promoting the long-term preservation and enhancement of the property. 

The sinking fund forecast

To effectively create this future plan, the body corporate requires a sinking fund forecast. This forecast identifies major items that will require repair or replacement in the upcoming years, along with estimated costs.  

Usually prepared by a quantity surveyor for an upcoming 10-year period, accurate forecasting is vital to ensure that the body corporate has sufficient funds to cover the maintenance and replacement of capital items when they arise.  

Read our article on when the sinking fund should be reviewed.

Sinking fund budget

Every financial year, the body corporate committee, with assistances from the body corporate manger, prepares a sinking fund budget. With the sinking fund forecast as a guide, this budget is shared with lot owners at the annual general meeting (AGM) and determines the sinking fund levy amount paid by each lot. 

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