Owners’ Management Companies Sinking (Building Investment) Funds
You may know it as Sinking Funds or Building Investment Funds but in essence they are the same thing. The Multi-Unit Developments Act 2011 (MUD) refers to them as sinking funds so let us go with that. In simple terms a sinking fund is a savings account put away for a rainy day where a large expense of a non-recurring nature occurs.
Section 19 of the MUD Act covers sinking funds and notes the following key points:
- OMC shall establish a sinking fund account
- Will be used to cover expenditure relating to refurbishment, improvement, maintenance of a non-recurring nature and expert advice
- Refers to maintenance of a non-recurring nature as
- Generally, expense is not incurred each year
- Certified by the directors as being of a non-recurring nature, and
- Approved by the members at a meeting as non-recurring
- Each member is required to pay into the sinking fund account
- Sets out when a developer/builder is regarded as an owner and must pay their share
- States an amount of €200 or other such amount as agreed by the members should be paid into the sinking fund account
The Act states that the sinking fund should be kept in a separate account and in a manner that identifies the funds as belonging to the sinking fund. While there is disputes as to whether this means a separate bank account or not, it would be regarded as best practice to keep the sinking fund in a separate bank account designated as sinking fund.
The €200 noted in the Act is a starting point there is now a train of thought in the industry that a more calculated basis should be used to plan better for future expenditure. This may take the form of a Planned Preventative Maintenance Plan or a Building Life Cycle Report, both of which try to achieve the same thing. That is to identify when assets within the development will require replacement and have an adequate sinking fund in place at that time to cover these costs. Company directors would be advised to engage an expert to carry out any such reports.
The directors should ensure that movements into and out of the sinking fund are correctly accounted for each year and that these are approved by members.