Buying property in 2022 can seem like a daunting task. Much has been made of the surge in property prices and for many first-home buyers, purchasing a unit is the more affordable option over a standalone dwelling. However, first-home buyers may be concerned when they begin to hear unfamiliar terms such as ‘sinking fund’, ‘special levies’ or ‘administrative fund”. These terms are not as formidable as they first appear and understanding their purpose and function can give first-buyers greater confidence in their search for a unit.
Whether looking for an apartment or a townhouse, first-home buyers in the ACT need to be aware of the Unit Titles (Management) Act 2011 (ACT). This legislation sets out the rights and responsibilities of the Owners Corporation (made of up of all owners in the Units Plan) and the unit owners themselves, part of which is the budgeting and levying of amounts necessary to pay for costs associated with the management, maintenance, and repair of the building(s). Under the Act, there are three types of funds which can be established, being the administrative fund, the sinking fund and special purpose fund.
The administrative fund is established and managed by the Owners Corporation to account for costs associated with the day-to-day maintenance of the common property and management of the Unit Plan. These costs typically include insurance, water, electricity, gardening and general maintenance.
The sinking fund is established to ensure the Owners Corporations has access to funds for future substantial costs to be incurred by the Owners Corporation. These typically include costs such as painting the building or major refurbishments and are forecasted in the sinking fund plan obtained by the Owners Corporation. This plan assesses the expected sinking fund expenditure for at least the next ten (10) years. The sinking fund plan also states the expected contributions of each member of the owner’s corporation, relevant to the sinking fund for that financial year.
Special Purpose Fund
A special purpose fund is an optional fund an Owners Corporation may implement to cover specific expenses which are not factored in the budgets of the administrative or sinking fund. Normally, a special purpose fund will relate to repairs or other significant works and are recovered from each owner in accordance with their unit entitlement. The special purpose levy is payable in addition to the administrative and sinking fund.
It is important first-home buyers understand the function of the levies payable to the Owners Corporation and consider the levy amounts attributable to each fund before purchasing a unit. The levy amounts are payable in addition to statutory rates, such as general rates and water charges, and will have bearing on the affordability of ownership.
If you have any property or conveyancing related queries or would like further information, please contact the BAL Lawyers Property Team on 02 6274 0999.