Understanding Maintenance Plans and Funds

Understanding Maintenance Plans and Funds  

Owners frequently ask us why the owners corporation has a maintenance plan and why they need to pay towards a maintenance fund.  A maintenance plan covers the repair and replacement of major capital items over 10 years. It is prepared by a specialist contractor and reports on the present condition, the estimated cost to repair or replace, and the expected life expectancy of each item. The plan also sets out the contributions each owner should pay towards the maintenance fund. This may also be referred to as a sinking fund.

Who needs a maintenance plan?

It is good practice for all owners corporations to obtain a maintenance plan but there is a legislative requirement for tier 1 and 2 Owners Corporations (over 50 occupiable lots) to obtain and implement one. Implementing a plan means collecting funds for the maintenance fund.

What are the benefits of a maintenance plan?

Maintenance funds have several benefits including:

• Equalizing the contributions between old and new owners

Imagine you buy into a property that is 10 years old. You’ve been living there a few months and you receive a letter from the owners corporation stating that the roof needs to be replaced and you need to pay $3,000 to contribute to the cost. What about the owner who lived there from year 1-9? They enjoyed the benefit of the roof without paying anything towards this replacement.

Having a maintenance plan in place prevents issues like this from occurring. Instead of the new owner having to bear all this cost, the old owner would have contributed via their payments into the maintenance fund over time. Implementing a maintenance plan therefore equalizes the contribution between owners who have purchased at different stages in the property’s life.

• Understanding the long-term maintenance requirements

The company who is contracted to create your maintenance plan will do a walk through of the common property and note any common capital items. The plan will include a schedule with an expected life expectancy of each asset. It is not expected that your average owner would know details of every common capital item. Instead, the plan gives them an easy guide and foresight into predicted future works.

Good maintenance helps retain the value of the building and makes the property more enjoyable to live in. Addressing repairs as they are required can prevent major issues down the road. Poor maintenance or neglect can lead to damage and safety hazards.

• Avoiding the need for a special levy

Maintenance plans allow funds to accumulate over time. Generally, the proposed budget in the maintenance plan will increase at a fixed percentage each year. Fixed increases such as this are less of a burden on owners compared to special levies which can create cause financial hardship. It is much easier for owners to budget when they know how much their fees will be.

• Maintaining property value

Well-maintained and well-funded owners corporations that are planning ahead are more attractive to potential purchasers. Savvy owners will review the documentation in a section 32 and ensure there are adequate funds in place for any expected major repairs.