Sinking Funds

The apartment owners network, www.apartmentowners.ie are interested in the views about the starting contribution of €200 per unit per year into the sinking fund of your management company.

The sinking fund is also known as a rainy day fund and is to be used when large capital outlay is required eg replacement of roofs, lifts, street lighting etc. It is definitely not for decoration and recurring costs.

The draft legislation, Multi-Unit Development Bill 2009 published 27 May 2009 recommends a minimum of €200 per unit.....

Our group has been very involved with the Law Reform Commission and Dept of Justice in ensuring that the concerns of members of management companies were heard and understood. We did lobby for the mandatory setting up of sinking funds but never suggested a figure. So we are unsure where the amount of €200 came from.

What do you think ?

Should a minimum figure be set ?

How much would you recommend ?

The 200 euro figure seems to be a random figure that was picked and obivously each development will have different requirements for sinking funds. Really a professional opinion should be got for your development to try and assertain what long term maintenace will be needed and budget for accordingly.

The sinking fund contribution should be based on a long term financial plan. Management companies should have a rolling 10 year plan, and base the sinking fund contribution on this, rather than some random figure like E200. We were almost bankrupt a few years back due to 6 lifts needing to be replaced within 2 years at E35k each plus other big capital expenditure items. It nearly drove us under but luckily we came through it. Forward planning would have avoided the nightmare we had to deal with.

It's relatively easy to predict what the big items are, and when they will fall due for replacing. A long term plan doesnt have to be elaborate and it doesnt have to be exact, and you dont have to commit to doing the work exactly when planned, but it allows companies to have an adequate sinking fund that can be justified if questioned.