Sinking fund amount required?

[maybelline]

I'm a management company director and fortunately we're in a good position financially with a decent sinking fund in a high interest account. The amount is such that if I had it in my bank account I'd be very very happy! But in terms of the management company the balance is equivalent to about half a years budget or approx 600 euro per unit, which to me doesn't seem huge given the reasons for having a sinking fund in the first place. The other directors however are looking wide-eyed at the zeroes and are talking about stopping contributing to it, reducing the fees next year (giving something back given the current economic climate etc etc ) and/or undertaking replanting projects etc, which would be nice but aren't essential. Their view is that we have insurance and there would have to be a huge natural disaster before we'd have to spend all that money on anything.
How can I convince them to leave it alone and keep contributing to it each year (I'd be happier to slow down adding to it if it was about twice the amount it is now) or am I being over cautious?

 

[tiger]

How old is the complex & how old are the lifts? It might be worth checking with the relevant folks what the service cycle is for them & what work/expense can be expected after 10/20 years.

 

[maybelline]

The estate is just over six years old and we don't have any lifts. We have electronic gates on the car parks but they need constant maintenance so they're covered in the budget anyway. Anything else is just structural and maintenance really, there's no other big things like lifts that will need replacing after a while.
Yes the place is relatively new so we don't need much emergency money, but I'm certain we will after 20 years for things I can't even imagine now. So I think I'd be failing in my duties as a director to not take a long term view of this.

 

[Frasier]

You could ask a quantity surveyor to produce a report to determine the level of sinking fund that should be maintained. This will outline the major works that will occur over a period of time and associated cost.

 

[Stupid Boy]

Common upgrades / betterment works..

Fire Alarm System
Pumps
Water Tanks
Rooves
Guttering repairs
Re carpeting of common areas
Painting of common areas
Repair works to kerbstones, footpaths

I would advise you to get a QS involved, would be interested to know how much they would charge for the service!

 

[Yorrick]

Every Management Company is different. Some Companies will schedule work such as new carpeting/painting to occur on a definite time scale so they are aware when significant bills will be incurred. Funds can be set aside annually either in the sinking fund or a separate account for such expenditure.

I would not be in favour of giving refunds. Whatever about freezing the annual charge for a year it is bad policy to give back funds.
Investment in constant maintenance of the apartment complex is an asset to all owners be they investors or owner occupied.

My view of the sinking fund is that it is to be used in the event of an occurrence which will not be met either fully or partially by insurance.
e.g. severe storms may damage roofs which will require immediate repairs. Insurance companies can be very particular with such type claims.

When purchasing an apartment one of the first questions which should be asked is the level of sinking fund. This gives a good indication as to how the complex is being managed.

 

[bertie1]

A good sinking fund available for an apartment complex is crutial in later years when other owners are selling. For the new buyer , you will find it easier to sell with a healthy sinking fund as , the money available for emmergencies means a new buyer will not be forking out for maintainance that should have been ongoing before they bought. The healthier the fund the easier it will be to move on the apartment afterwards.

 

[GeneralZod]

A good sinking fund available for an apartment complex is crutial in later years when other owners are selling.

Agree with this.

My 7 year old apartment block has €12,000 in the sink fund for 18 apartments and we've just decided to put 10% of the annual management fee (being held at €1500 for 2009) into the sink fund each year. Big jobs so far: Repaint the exterior wood twice and the interior once. Completely replace the electronic gate mechanism (darn gates cost a fortune). Big jobs coming up would be an exterior repaint, carpeting common areas, and car park tarmacking.

I'm told that is a bigger fund than a lot of much larger blocks have.