A sinking fund is like a hedge against misfortune, such as large scale repairs or major works on a building. The maintenance fee provides for everyday repairs and upkeep around a property, basically any on-going costs.
Nobody likes to be hit with hidden charges, so understanding how a sinking fund and maintenance fees both work is a good step to take before purchasing a strata property.
These shared fees affect virtually all residents in strata housing, providing important financing to ensure vital property management and maintenance.
After all, it would be a shame if you designed your perfect living space, only to find the building around it crumbling.
Don’t worry though, things don’t have to go that far… just pay your fees! But wait a minute, what actually are the sinking fund and maintenance fees, and why should they matter to me?
What Is A Sinking Fund?
A sinking fund is a shared pot of funds prepared against future expenditure such as large scale repairs or major works on a building.
Think of it like a hedge against misfortune, or money you’ve got saved up for a rainy day.
Residents in a strata building all pay into this fund, providing financial security in the event of major works being undertaken. It’s important that everyone contributes to these funds.
You don’t want to shell out big for some important building repairs, only to discover that the guy down the hall at unit number 43 doesn’t have the money to pay!
What Is A Maintenance Fee?
The maintenance fee provides for everyday repairs and upkeep around a property. It covers elements of property management like gardening, repairing common areas, security, and keeping the place clean.
While a sinking fund is a large pot of money designed to offer financial security in case of expensive repairs, the maintenance fee is there to pay for on-going costs.
Running a large property isn’t free, and comes with more costs than you might first expect.
Security is probably the most visible, but all these people working to keep your building looking good, alongside the management and administration team that oversee them, all want to be paid.
Now, THAT'S what the maintenance fee is for!
How Much Do Maintenance Fees Cost?
When it comes to maintenance, total cost can depend on a wide range of factors.
If your condo development has a beautiful 15-acre garden complete with marble fountains, you can bet your wallet that it’s going to cost more to maintain than an apartment complex with just a car park in the basement.
The density of living is also a big factor in total costs. Low-density property, apart from probably being more luxurious and having higher maintenance needs, also means less people to share the costs, and thus less economy of scale.
A property within a high-density development will see total costs split between more residents, often making for a more economical situation.
The final calculation on maintenance fee costs is based on a shared percentage, which depends on a number of factors relevant to your apartment.
So the total cost is divided amongst all owners based on this calculation. These factors include:
- Type of unit
- Total floor size of the parcel
- Shared facilities you have access to
- Shared access points
Now remember that good management is also a factor in the costs. If you’ve got an apartment management team who don’t keep on top of maintenance, fail to review contracts, or just downright overcharge you, then chances are your costs will be higher than they should be.
Don’t worry though, most property management teams are professionals who know what to do. That’s what you’re paying for after all!
What’s The Cost Of A Sinking Fund?
The sinking fund is kept in a separate account to maintenance fees, and generally charged as a percentage of the overall service charges you pay.
That fee is set at 10% of the total cost of the service fees. That means if you’re in an expensive complex with high maintenance fees, your sinking fund will be higher as a result.
Do You Have To Pay The Sinking Fund And Maintenance Fee?
Collection of maintenance fees are bound under law, notably the Strata Management Act 2013.
This legislation compels developers to set up a management company in order to provide appropriate on-going management of a property.
Want to get technical? Let’s do it. Under this legislation, a Joint Management Body (JMB) should be established at the first general meeting of a development, which must take place within 12 months of transfer of ownership of the first unit.
The JMB will then elect a Joint Management Committee (JMC) of no fewer than 3 and no more than 14 people to manage a property.
The JMB is legally responsible for maintaining and managing the building, determining charges and sinking fund, and all other obligations under the Strata Management Act 2013.
The JMB is empowered to collect funds and undertake maintenance as laid out in the Act.
What Happens If You Dispute The Maintenance Fees?
The good news is that you’re not without your own say in these maintenance and legal fees. The Strata Management Act 2013 makes clear recourse for owners to challenge the current property management. Here are a few of the powers you’re entitled to:
- Question the JMB: They’re working for you! You have the right to question the JMB about maintenance decisions.
- View JMB accounts: You’re entitled to request to access and view the accounts of a JMB to see how and why they’re spending your money. A charge no greater than RM50 may apply to fulfil this request.
- Vote on issues: You have a right to vote on a general meeting, and must be given at least fourteen days’ notice of a meeting taking place.
- Apply for review: You may challenge and apply for review of common charges with the Commissioner of Buildings within your local state area.
It’s important to note that your rights as an owner become null and void if you fail to pay your charges.
So if you’re thinking of just not paying for disputed charges, it becomes challenging to exercise your rights. Here’s what happens:
- No voting rights: If all or any part of common charges are unpaid within 7 days of a general meeting, a proprietor loses their entitlement to vote.
- Interest charges: Property management is legally allowed to charge interest at a rate of no more than 10% per annum for any common charges outstanding within 14 days of request for payment.
- Limit access to public areas: Your access to public areas may be limited if you fail to pay charges.
- Criminal charges: Under the Strata Management (Maintenance & Management) Act 2015, failure to pay maintenance charges can ultimately be judged a criminal act.
Don’t worry about all the bad stuff though! Focus on the good. Paying maintenance fees and a sinking fund helps provide the services that maintain a positive place with a conducive environment to live in.
A clean, well-maintained apartment complex is a far better place to call 'home', than a dark corridor with suspicious stains on the walls.
So, the next time your maintenance fee payment is due, try not to think about the money it’s costing you, but focus on the positive environment it can help create in your building.
Life in a high-rise isn’t all gloomy maintenance fees and sinking fund! Why not brighten up your high-rise lifestyle with these great ideas on vertical gardens and balcony gardens so that you can bring a slice of haven into your own abode. Maybe it'll help you take your mind off those necessary expenses!
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