To understand what the capital works fund (also known as a sinking fund) is, it’s important to first clarify what types of strata levies can be issued:
- Administrative fund levies cover the day-to-day expenses incurred in a strata living arrangement. Depending on the facilities in your strata, these can include such costs as cleaning, gardening, electricity and electrical work, plumbing, and taking out insurance.
- The capital works fund is designed for larger and longer-term repairs and maintenance or unplanned work, like repairing concrete spalling or balconies.
- Special levies are, as their name suggests, fees issued only in particular circumstances and are designed to cover any emergency, unexpected or planned upgrade expenses. These can be required from time to time to cover major works, both planned and unplanned, if there is not enough money in the capital works fund.
The purpose of maintaining a capital works fund, then, is primarily to avoid issuing these special levies. If your fund is at a reasonable level, major expenses incurred by living in a strata scheme should be able to be covered without much hassle. Without a capital works fund, urgent or major works could put a large amount of financial stress on owners.
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When is it determined?
The levies for the capital works fund are set each year at your strata’s Annual General Meeting (AGM). These are agreed upon by the owners corporation, which provides each owner with an active role in deciding how much they should pay in strata levies each year. The size of the capital works fund levies should depend on the size of the strata scheme, whether there are any repairs planned or expected in the upcoming year, and what the facilities provided in the strata scheme are.
The owners corporation also has a responsibility to have a capital works fund plan and for it to be updated every five years. This often involves engaging an external company to come to the building and review all of the assets in the building. The external company will then schedule a plan for the replacement or upgrade of those assets over a period of time.
What happens if it is running low?
If the capital works fund runs low due to something like unexpected repair or maintenance costs, a special levy can now be raised to bolster it and cover the expenses. Alternatively, an application for a financial loan can be submitted. However, good management of your strata scheme’s financial records, alongside a continued dedication to maintenance and upkeep, should help to keep this fund in excellent condition.
If you have any further questions on what your capital works fund should look like, or whether you are being issued an appropriate amount of levies, have a look at Jamesons’ document bank and check out what body corporate services we currently offer.