I own an apartment in a complex which contains both houses and apartments. The estate sinking fund is financially very healthy, but apparently apartments cannot access funds contributed by houses. Is this correct?
The OMC (owners' management company) has split the one sinking fund account, which is financially very healthy and more than 20 years old, into two separate columns reflecting the individual contributions from the house owners and apartment owners.
Recently the apartment owners were levied for 50 per cent of the cost of some remedial work in relation to apartment fire safety, the balance being paid for from the apartment sinking fund. However, the OMC now wishes to immediately replenish the apartment sinking fund column with a 40 per cent increase in apartment service charges, while retaining the full balance in the house column.
Is it not the case that a sinking fund is an "all for one, and one for all" rainy-day safety net and therefore the one sinking fund account should be used to rectify any discrepancy in the apartment column?
Aisling Keenan writes: The sinking fund is a fund that is established by the OMC in accordance with section 19 of the Multi-Unit Developments Act 2011. It should be a separate bank account which is ringfenced to provide for capital expenditure of a non-recurring nature. This savings fund is for long-term planned maintenance and refurbishment projects such as installation and/or replacement of lifts, fire-safety systems, floor coverings, roof replacement, internal and external redecoration etc.
The fund will also cover unplanned expenses that are not covered by insurance such as legal actions, roof repairs etc. Prudent sinking fund provision by OMCs is essential to the long-term sustainability of the development. The level of the fund is at the discretion of the members and directors.
In an OMC, the sinking fund requirements for houses in an estate is vastly different than the sinking fund requirements for an apartment block. For example, major renewal and replacement of fire-safety systems is considerably costly and essential work that must be carried out at least every 10 – 15 years. In a housing estate there wouldn’t normally be items of expenditure such as this simply because the houses in an estate do not share buildings.
The apartment block is a building that has to be maintained. If house owners were paying into a sinking fund that was being spent on the apartment block, this would be inequitable for them as they essentially have no interest in the apartment block. They do have an interest in the management company but that is distinct from their interest in the apartment block.
The Multi-Unit Developments Act 2011 repeatedly states that the apportionment of charges in a management company must be on a fair and equitable basis. Section 2 provides as follows: “. . . a reference to fair and equitable apportionment of the costs and expenses of the mixed-use multi-unit development shall mean that account is taken of all relevant matters including the respective level of use of any common areas by the owners of different classes of units and their servants, agents and invitees.”
It is this provision that demonstrates that the apportionment of sinking fund levies and service charges in your management company is correct because it would be inequitable for the houses to be paying for the maintenance of a building that they have no interest in.
The replenishing of a sinking fund which has been depleted is important in that one of the main purposes of the sinking fund is to provide for major renewal and repair and unplanned expenditure or emergencies. The replenishing of the sinking fund reserves is a fiscally prudent measure taken by the OMC in order to have funds available should they be required at short notice and also for planned projects.
Aisling Keenan is a property managing agent and consultant and an associate member of the Society of Chartered Surveyors Ireland, scsi.ie
