What Is The Difference Between Sinking Fund And Maintenance Fees
Table of Contents
Do you know the difference between a sinking fund and maintenance fees? For the average person, the two might as well be interchangeable. However, there is a pretty clear distinction between the two.
For those who own a strata property such as an apartment or condominium unit, knowing the difference is important so you know what you are paying for.
What are these fees for?
Both sinking funds and maintenance fees are shared fees that affect virtually all residents in strata housing. The collection of these fees are pivotal in providing the necessary financing to ensure vital property management and maintenance.
After all, you don’t want to spend all your time and money buying your dream apartment, only to find the surrounding building is derelict and in disrepair. If you don’t want this to happen, then you are going to have to pay your fees.
What is a sinking fund?
A sinking fund is kind of like your personal emergency fund, except on a larger and shared scale. Imagine a shared pot of funds that is filled with cash from all residents in your building. These funds will then be kept by management for future expenditure, such as large scale repairs or major works on a building. In simpler terms, it’s a pot of cash that is kept for a rainy day.
Residents in a strata building all pay into this fund. The aim is to provide financial security in the event of major works being undertaken such as renovating lobbies or refurbishing the public gym. It is of utmost importance that all residents contribute to this fund. This fund is a team effort as you really don’t want to pay a big fee for some important building repairs, only to discover that Jeff, who is living down the hall in unit 10 isn’t contributing a single sen.
What is a maintenance fee?
The maintenance fee on the other hand, provides for everyday repairs and upkeep around a property. It covers all kinds of elements with relation to property management. This can include things such as gardening, repairing common areas, security, and keeping the place tidy and clean.
While this might sound somewhat similar to a sinking fund, there are a few subtle differences. For one, a sinking fund is a large pot of money designed to offer financial security in case of expensive repairs, renovations, or expansions. The maintenance fee is there to pay for ongoing and day-to-day costs (like salaries for guards and groundskeepers).
How much do maintenance fees cost?
When it comes to maintenance, total cost will vary from property to property as it is affected by a number of different factors. If you live in a high-end condo or apartment with luxurious public spaces, marble fittings, a water fountain, and well-maintained public amenities, you can bet that your wallet is going to feel a little sting every time you are required to fork out cash for maintenance fees. If your property only has the bare basics, then you can expect to pay much less.
The density of living is also a big factor in total costs. Low-density properties also means that there are fewer people to pay maintenance fees. Depending on how luxurious a low-density property is, maintenance fees can vary wildly. It is basically an economy of scale applied to apartment living density.
On the other hand, a property within a high-density development will see total costs split between more residents, often making for a more economical situation (Once again, also depending on how luxurious the property is).
Typically, maintenance fees are calculated based on the floor size of your unit. However, there are a few other factors that may come into play as well. These can include:
- Unit type
- Shared facilities you have access to
- Shared access points
Good management is also another key factor. If you have a management team that does not keep on top of maintenance, fail to renew contracts, or simply overcharge you, then you will likely be paying more than you should.
How much do sinking funds cost?
Sinking funds are generally kept in a separate account for maintenance fees. Usually, these funds are charged as a percentage of the overall service charges you pay. As a rule of thumb, sinking fund fees are usually set at 10% of the total cost of the service fees. That means if you live in an expensive complex with high maintenance fees, your sinking fund will be higher as a result.
In summary:
| Sinking Fund | Maintenance Fee |
|---|---|
| Collected and saved in an account to be used for major purchases and renovations | Collected and use for the day-to-day running and maintenance of the property |
| Usually set at 10% of the total cost of the service fees | Calculated based on floor size and other factors such as unit type, shared facilities, and shared access points |
Disputing maintenance fees
If you think you are being unfairly charged for maintenance fees, you are not completely out of luck. The good news is that you are not without your own say in these maintenance and legal fees. The Strata Management Act 2013 makes it clear that owners are allowed to challenge the current property management. Here are a few of the powers you’re entitled to:
- Question the Joint Management Body (JMB) – The JMB is an interim body that is set up to run and maintain a strata property beginning from the completion of the development until the issuance of strata title by the land office. The JMB technically works for the property owners. You have the right to question the JMB about maintenance decisions.
- View JMB accounts – As a property owner, you are entitled to request access and view the accounts of a JMB to see how and why you are 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. Knowing your rights as a strata property owner is paramount. However, keep in mind that your rights as an owner become null and void if you fail to pay your charges. In fact, a number of things can happen if you choose to not pay for disputed charges:
- No voting rights – If all or any part of common charges are unpaid within seven 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.
In summary, paying maintenance fees and a sinking fund helps provide the services that maintain a positive place with a conducive environment to live in. After all, a clean, well-maintained apartment complex is a much nicer place to live in than a dark and decrepit one. If you really think that you are paying more than you should for these fees, always remember that there are measures you can take to dispute these charges legally.
