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I know this topic has been spoken about some years ago, and I remember JimmyT was a little frustrated with the interpretation of section 75A of the SSMAct. But, let’s open this topic up once again.
Older buildings are coming of age, and there is a preponderance of under funded Strata Plans in Australia.
Wasn’t s75A designed to avoid strata plans being faced with financial problems because they have not been saving each year, anticipating expenditure to update, refurbish and renew buildings that are 40 plus years old?
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Section 75A from my understanding applies to ALL strata schemes in NSW regardless of age and condition. I guess the reason for the implementation was to ensure that strata schemes start planning for the future and budgeting for any major projected capital expenses which many were not, and probably still aren’t.
@Stevecro said:
Section 75A from my understanding applies to ALL strata schemes in NSW regardless of age and condition. I guess the reason for the implementation was to ensure that strata schemes start planning for the future and budgeting for any major projected capital expenses which many were not, and probably still aren’t.Stevecro is correct. For the uninitiated, here is section 75A which I reprint with no further comment other than to point out that there is no requirement to FUND the plan … just to have one.
75A Owners corporation to prepare 10-year sinking fund plans
(1) This section applies to owners corporations established on or after the commencement of this section.
(2) An owners corporation to which this section applies is to prepare a plan of anticipated major expenditure to be met from the sinking fund over the 10-year period commencing on the first annual general meeting of the owners corporation.
(3) The initial plan is to be finalised by the end of the second annual general meeting of the owners corporation.
(4) The plan is to be reviewed and (if necessary) adjusted no later than at the fifth annual general meeting of the owners corporation.
(5) An owners corporation to which this section applies is to prepare a plan as referred to in subsection (2) for each 10-year period following the period referred to in that subsection and is to finalise and review the plan in accordance with the requirements of subsections (3) and (4) at the corresponding annual general meetings in the relevant 10-year period.
(6) An owners corporation may engage expert assistance in the preparation of a plan under this section.
(7) The regulations may extend the operation of this section to all owners corporations or to such classes of owners corporations established before the commencement of this section as are specified in the regulations.
(8) A regulation referred to in subsection (7) may make necessary modifications to the application of any provision of this section to an owners corporation established before the commencement of this section.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
Good Afternoon All,
Our strata plan has a 10 year sinking fund plan – hopelessly out of date – and it should be updated.
I guess I have to drive this project. Our strata is a small (4 townhouses, inner west Sydney Metro area, circa 1995 construction.) Our plan does not have large common areas, pool or lift etc. Basic requirements, as I see it are painting, replacement of wooden railings on balcony s – due now I believe – and that is about it. Is there a template I can use to develop the 10 year plan? I am aware that there are firms which specialise in the preparation of the 10 year plans; however, I would like to avoid the expense if I can do it myself.
I am not overly experienced in this area, am I sailing into dangerous waters?
What are the statutory and/or legal requirements in this area?
Regards,
Dudley
Dudley
You could put together a spreadsheet yourself with columns for the item, when it will need to be upgraded, what the anticipated cost will be then, and the amount per year that you need to set aside to have that money in the bank.
If you are doing upgrades now, get the tradies to give you a reasonable estimate of the “life” of the work and just apply an amount for inflation (3 percent per year?) to get you to the cost next time around.
Otherwise I feel fairly confident that if you went to OCN.org.au and applied to join the Owners Corporation Network you would find all sorts of stuff there that would be handy for you.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
@JimmyT said:
DudleyYou could put together a spreadsheet yourself …
Agreed that you can probably DIY. This is not ‘rocket science’. Get together with a couple of your neighbours and the old plan and brainstorm every single thing that you think might be an expense at some point. Put everything in a table, think back to how long (for example) the penultimate paint job lasted before you needed to do it again most recently. What did it cost then? Add a bit more for inflation. I would just get started and put in your best guesstimates and have a ‘notes’ column for where the price estimate came from – a recent trade quote, an extrapolation from what it cost last time, a guess (could be quite OK to do that for the things that are obviously going to be relatively small expenses). I expect that you will have only a couple of items that are the big ticket matters. The minor things could add up to be non-trivial so it is worth counting them all.
If you have friends in other similar strata circumstances, ask to look at their plans. Be careful to avoid the retired manager types who want to over-think this sort of task and make it more complex than a submarine contract.
Good Afternoon Jimmy T and PeterC,
Many thanks for your advice on Sinking Fund Plans.
I will start a spreadsheet, as well as, review the old plan.
When I completer the plan what is the next step? Do I just record it and keep it available or must/should it be lodged somewhere? Are there requirements in this area that must be met to satisfy government departments and more importantly penalties for not doing so ?
Once again, many thanks.
Dudley
I can’t say for sure what you do with a completed plan in NSW. I am in the ACT. I would expect that the OC would have to resolve at a general meeting to adopt the plan. In the ACT we are required to have a plan covering at least 10 years and it must be reviewed at no more than 5 year intervals. There is no requirement to lodge the plan anywhere other than in our own records. In our OC we have occasionally made an amendment to the plan at less than 5 year intervals.
I’m going to look ahead to the laws that come in in NSW on November 30. But first, there are no penalties attached to not creating an estimate or, indeed, not funding the estimated amounts.
However, ECs and owners corps leave themselves open to individuals taking action at NCAT if neither is done. Those actions could range from seeking orders to comply with the law to seeking the replacement of the EC and Owners Corp with a strata manager.
OK, here is the legislation as it will apply from November 30. NB The “sinking fund” will thenceforth be known as the Capital Expenditure Fund.
80 Owners corporation to prepare 10-year capital works fund plan
(1) An owners corporation is to prepare a plan of anticipated major expenditure to be met from the capital works fund for a 10-year period commencing on the first annual general meeting of the owners corporation.
(2) An owners corporation is to prepare a plan for each 10-year period following the 10-year period to which the first plan applied. The plan is to be prepared for the annual general meeting at which the period covered by the previous plan expires.
(3) An owners corporation may, by resolution at a general meeting, review, revise or replace a 10-year plan prepared under this section and must review the plan at least once every 5 years.
(4) A plan under this section is to include the following:
(a) details of proposed work or maintenance,
(b) the timing and anticipated costs of any proposed work,
(c) the source of funding for any proposed work,
(d) any other matter the owners corporation thinks fit,
(e) any other matter prescribed by the regulations for the purposes of this section.
(5) A plan under this section is to be finalised by the end of the next annual general meeting of the owners corporation after the annual general meeting for which the plan is prepared.
(6) An owners corporation may engage expert assistance in the preparation of a plan under this section.
(7) An owners corporation is, so far as practicable (and subject to any adjustment under this section), to implement each plan prepared under this section.81 Owners corporation to set contributions to administrative and capital works funds
(1) The owners corporation must determine the amounts to be levied as a contribution to the administrative fund and the capital works fund to raise the amounts estimated as needing to be credited to those funds.
(2) That determination must be made at the same meeting at which those estimated amounts are determined.
(3) The owners corporation must levy on each person liable for it such a contribution.
(4) If the owners corporation is subsequently faced with other expenses it cannot at once meet from either fund, it must levy on each owner of a lot in the strata scheme a contribution to the administrative fund or capital works fund, determined at a general meeting of the owners corporation, in order to meet the expenses.
(5) A contribution is, if an owners corporation so determines, payable by the regular periodic instalmentsThe opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
A defect in the ACT’s legislation till a few years ago was ambiguity about whether the Sinking Fund Plan could be used to anticipate capital works to make improvements or was strictly for maintenance only. I became aware of this when our EC proposed to use sinking funds for a new piece of infrastructure, believed it had general meeting approval but some owners objected and sought to have the work halted. When the Act was being reviewed I put in a submission describing our situation and now the Act explicitly permits capital works to be for improvement, not just maintenance.
I guess calling it a Capital Works Fund might have avoided the argument we had. Or, does some other section of the NSW Act specify what types of Capital Works expenses may or may not be covered?
Hi I was told by our strata manager, that if a sinking fund plan is made up by owners/owner (this is in NSW) and they put their name to it (ie sign it), then they can potentially run the risk of being sued if something is incorrect, even if this owner later sells – does this information sound right to all of you – to me it sounds a little far fetched.
@Susanp said:
Hi I was told by our strata manager, that if a sinking fund plan is made up by owners/owner (this is in NSW) and they put their name to it (ie sign it), then they can potentially run the risk of being sued if something is incorrect, even if this owner later sells – does this information sound right to all of you – to me it sounds a little far fetched.Sounds odd to me. If the plan was adopted by general meeting resolution and all were given ample time to scrutinise the plan before the OC as a whole agreed to adopt it, then it would seem to be only the entire OC that could be held responsible. And then, who is the OC responsible to except to itself. Perhaps an individual could be liable if it could be shown there was some deliberate deception involved but I can’t see how a simple failure to predict the future perfectly could result in a liability.
It would be wise to include in any plan some sort of contingency component. This would give some latitude to cover the possibility that one or more future cost might turn out to be more than had been reasonably expected or some expense might might be required sooner than had been reasonably expected or that something entirely unexpected shows up.
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