What is a Maintenance Funds In Victoria
A Maintenance Fund is essentially a financial safety net. It is thoroughly designed to empower an Owners Corporation to carry the essential costs that come with the maintenance, upkeep and repairs of a building. As specifically guided by the pre-established maintenance plan of the scheme.
The utilisation of the maintenance fund can encompass a variety of diverse ranges of expenditures. These expenditures primarily cater to anticipated capital expenses and non-associated items. These costs would typically consider one-time expenses such as painting operations or structural repairs to the strata property. While the fund is also equipped to replace capital items within the shared complex such as carpets in common areas, shared fencing or communal furniture.
There are three primary sources for the accumulation of the maintenance fund:
- Financial contributions made by owners corporations to the fund.
- Interest generated and received from the investment of the fund.
- Proceeds from insurance claims (pertaining to destroyed or damaged capital items).
Prescribed Owners Corporation
Prescribed Owners Corporation is having more than 100 lots (including storage lots, car parking lots, and accessory or ancillary lots), or collects more than $200,000 in annual fees in a financial year.
The $200,000 limit does not include special levies raised under section 24 of the Owners Corporations Act 2006.
Thus, CAV stipulates the duties of a Prescribed Owners Corporation relating to the set-up of a maintenance plan/fund as follows:
- prepare and maintain a 10-year maintenance plan for major capital items that are its responsibility
- establish a fund to implement the plan
- report on the implementation of the plan at every general meeting
In addition, buildings with multiple owners corporations which are comprised of more than 100 lots may also be considered prescribed owners corporation and carry the same duties as maintenance funds according to CAV.
Owners Corporation Comprised of 100 Lots or Less
An owners’ corporation having 100 or less than 100 lots can set up a maintenance plan and fund but is not required to formally adopt it (unlike the requirements of a prescribed owners corporation). This approach gives the owners’ corporation the flexibility on how to manage the spending of the maintenance funds or the option to move it to an administrative fund.
The benefit of having a fund for your maintenance on this set-up is that i.e. if in 5 – year time the roof needs replacement at a cost of $80,000 you’ll have enough/excess/some funds set aside – rather than the owners being hit with a special levy out of the blue.
The building or the Owners Corporation has the option of setting up a maintenance fund (for owners to contribute to, in addition to contributing to the annual admin fund/budget).
If the Owners’ Corporation chooses to set up a fund (i.e. vs owners being hit with special levies when large repairs/upkeep is needed), then below are some options:
- Engage a Quantity Surveyor to prepare a maintenance report (at an estimated cost of ~$800-$2,000; it’s a pretty precise way to budget how much owners should contribute for items and when things will need replacement/repainting/fixing etc.)
- Consult with the new manager on what a reasonable amount is for the Owners Corporation to contribute to the maintenance fund.
- The committee/Owners at the AGM compute an amount that’s acceptable for everyone to set aside and contribute to the fund.
The maintenance fund sits in a separate account from the admin fund – and can sit in an interest-bearing account (though it is currently a low interest rate environment).
For further information about maintenance funds or if you are ready to have a conversation about your strata situation. Contact Strata Management Consultants ™ for our strata consulting services at 1300 917 848 or via email@example.com.