Review of Management Company Accounts - sinking fund etc...

[vallnett]

Hi

I couldn't find a thread on this before - does anyone have tips for things to look out for when reviewing Management Company accounts before buying an apartment?

If the development is approx 10 years old, how much of a sinking fund should ideally be in place?

(My solicitor is carrying out the legal searches re pending legal actions etc so this is more in relation to the actual financial statements).

Thanks!

 

[ontour]

The size of the sinking fund depends on the scheme, it's size, facilities and materials used in the construction. For example, if the scheme has lifts, the boxes and engines may need to be replaced / overhalled every 8-10 years, the building may need to be repainted every 4-5 years. The key to the amount of the sinking funds is it's correlation to expected future costs for the development in question. Unless management companies have researched and planned for these future events with realistic budgets, the occupiers will be hit for higher charges in the future or the work will not be done which will probably negatively impact resale value.

Take a walk around a 10 year old scheme and see if the grounds have been maintained, painting is done, carpets replaced etc. This will give you a good idea of the dilligence of the Management company.

Without knowing what work has been done using the sinking fund or what work is planned there is no way of knowing if it is adequate.

 

[vallnett]

Thanks Ontour, I know it's a bit like how long is a piece of string! I went out again for a good look and the place looks in good enough shape but who knows what's going on behind the scene with lifts etc...

I was talking to a friend who is on the management co of her apartment block and they don't have any sinking fund and intend dealing with big renovations by emergency contributions when they arise... sounds like a bad idea to me!

 

[ontour]

Not having a sinking fund might be in the interest of the current owner's that are involved in the running of the management company if they believe that they will have moved on before any significant expenditure is expected.

If that is the case, they will save money by not funding a sinking fund. Logicallly this should impact their ability to sell however I don't think that purchasers are knowledgeable enough about sinking funds to make their absence an impediment to purchasing an apartment.