The purpose of a body corporate sinking fund is to collect a small amount of money from all owners each year to meet anticipated major expenditure over the next 10-year period.
The sinking fund forecast (SFF) estimates the cost to cover future expenditure for the replacement and/or maintenance and repair of building components at the end of their expected life – and calculates what owner levy contributions will be required each year to cover those expenses when they become due.
The importance of the SFF is obvious, but few people know ‘what it looks like’ and how it provides a ‘window into the future’ of the body corporate finances.
The SFF is not set in concrete because it is based on estimates, made by experts, but there will be occasions when components fail prematurely or when a vital component must be replaced, and/or the current cost of replacement far exceeds the estimate made in the last SFF.
An example can be seen here in the case of the 2018 estimate of the costs replacement of the scheme intercom system, which enables visitors to contact residents at the entrance to their respective tower, and for the resident to remotely release the front door and activate the lift call button to enable the visitor to reach the resident’s apartment.
In 2018 this cost was estimated at $121,471 whereas Motion 10 (on the 2023 AGM agenda) shows competitive quotes between $408,204 and $539,572. The body corporate is not required to strictly follow the SFF, but it must adapt to unforeseen demand on financial resources.
The sinking fund forecast provides a blueprint and a ‘window into the future’ through which owners can see what is ‘reasonably’ expected to occur over the coming year or years both in terms of repair and maintenance of building components and the associated costs.
The easiest way to understand the scope of the SFF is to take a look at the attached SFF prepared by Seymour Consultants for our scheme in 2018.
For reasons not apparent, the sinking fund forecast has not been posted on the body corporate portal where it could be perused by owners.