Long Term Maintenance Fund

This article attempts to summarise and clarify a lurking problem at many villages.

Whilst the script is generally quoting from the actual legislation, any comments outside it are shown in italics, as the writer’s opinion.

Notwithstanding that there is no coverage of the LTMF issue in the Retirement Villages Act 1986, it is embraced specifically in the more up-to-date Owners Corporations Act 2006, and should be followed in all retirement villages as a direct and necessary responsibility of good management.

As set out in Division 3 – Maintenance Plan (Sections 36-39) of this Act, a village “may prepare a maintenance plan for the property for which it is responsible”. (For a “prescribed village legislated by regulations”, it is obligatory i.e. “must prepare”).

The plan sets out the anticipated repairs and maintenance required, with estimated costings, within the next 10 years, but it may be noted that “within” means a shorter period could be covered. In my opinion, 10 years is too long into the future to be practicable, and 5 years is more appropriate, bearing in mind that current members are paying present-day allocations within their fees, for the future benefit of others (if they are no longer resident).

Also, in accordance with the Strata Schemes Management Act 1996 – Section 75A(4), the plan should be reviewed within 5 years, anyway.

The Maintenance Plan only takes effect when approved by resolution of the Owners Corporation, i.e. its OC Residents Committee (which resolution has effect as a resolution of the Owners Corporation (Section 113), and is then reported to the residents at the AGM as its approved plan.

Having established it, there is no point in having a plan if it’s not then acted on.

The next 6 clauses under Division 4 – Maintenance Fund (Sections 40 – 45) state that, having approved a plan, it “must establish a maintenance fund” to “be used for the implementation of the maintenance plan”, and “any part of the annual fees that is designated as being for the purpose of the maintenance plan must be paid into the fund”.

At this point it is appropriate to observe that the Act is silent about what constitutes a ‘fund’. The obvious inference, and logical answer is that it’s a ‘sinking fund’ into which fees (allocated in the budget) must be paid into a separate (preferably interest-earning) bank account, in the name of the Owners Corporation. A new fund will of course take time to finance an ideal level of comfort from annual fees, and can be augmented by a levy, or any other source available (even the operator!).

Money may then be paid out of that account “at any time in accordance with the approved maintenance plan”.

The use of the term “sinking fund” can be subject to varying interpretation (e.g. for emergencies), but is identified by Washington Brown (professionals in strata title and Owners Corporation administration), for “expenses of communal areas including painting, driveway refurbishment and replacement of common property items like carpets, roofing and guttering etc”.

In any case, under Section 44, extraordinary payments may be made out of the fund if approved by special resolution, and under Section 45, certain purposes (without special resolution) can be made i.e. any court order, expenditure necessary for safety, and anything forgotten in the original plan (that’s open-ended!).

Jim Burrowes (Previous RRVV Treasurer)