Body Corporate Management: Setting Up a Sinking Fund

Managing a rental property that is comprised of multiple units can be a lot of work, which is why most property owners recommend relying on body corporate management services. If you're a property owner, you should consider hiring a body corporate to manage the day-to-day affairs and operations of your properties, so you can sit back and relax. To make sure the body corporate is doing its job, familiarize yourself with the many responsibilities it has. In particular, the body corporate is responsible for setting up a sinking fund. This article will explore what a sinking fund is. 

What Is a Sinking Fund?

A sinking fund is a statutory requirement for the body corporate to establish and manage in order for it to stay licensed. The sinking fund is used to pay the body corporate's expenses that are related to managing and maintaining the property. The sinking fund is also used to pay for expected maintenance and capital replacement costs down the road. The body corporate is also responsible for investing unused money in the sinking fund.

Money paid into the sinking fund includes:

  • money paid by the property owner;
  • interest collected from the fund's investments; and,
  • money paid out from insurance claims.

Since you'll be making contributions to the sinking fund, you want to be aware of how much money is being paid into the sinking fund regularly.

What Are The Responsibilities of the Body Corporate In Regard to the Sinking Fund?

The sinking fund is one of many funds that are managed by the body corporate. The body corporate is responsible for preparing a budget to be reviewed by the property committee, and for allocating the funds properly each fiscal year. As a property owner, you really don't have to do much other than review the budget since you will be a part of the property committee. The budget needs to include:

  • necessary and reasonable funds for the financial year;
  • a budget on the funds that are reserved to meet the expenses for the upcoming years;
  • a breakdown on where spare funds will be invested and the expected return;
  • information regarding the cost of repairing or maintaining certain aspects of the property;
  • estimated future costs related to repair or maintenance.

The property committee is then responsible for reviewing the budget to determine whether it is reasonable and practical. In particular, you want to make sure that the sinking fund is sustainable. Once the committee has approved of the budget, the body corporate can then use the sinking fund to pay for necessary expenses.

Conclusion

A well-managed sinking fund can make life a lot easier for the property owner and the tenants, as it sets funds aside for years of needed maintenance and repair work. A well-prepared budget will breakdown all of the expenses, and also provide insight as to whether the sinking fund can manage itself based on how much money it already has and how much money is being invested into different venues. 

For more information on body corporate management, contact a company like R. Jackson Pty Ltd.


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