A Building Investment Fund (Sinking Fund) is a reserve created to build up sums which can be used to pay for large items of infrequent expenditure such as the refurbishment of a roof and for major items which arise regularly such as redecoration of the common area interiors. The sums required can be significant over a 20 to 30 year life cycle. The fund should be initiated from the very first year and then adjusted as necessary annually and collected to avoid, as the work arises, the costs having to be funded through a special levy or a one off lump sum.
Funds and expenditure headings are specific to the development and will differ accordingly.
However, in simple terms infrequent but essential refurbishment or replacement headings are:
- Lifts (upgrades and/or replacements)
- Mechanical and electrical plant – lighting systems, pumps, fire alarm and safety systems, intercoms, security plant i.e. CCTV cameras
- Gates - motors and parts
- Roofs - major repairs to, or replacement of materials and parts
- Roads and car parks, footpaths/kerbs re-surfacing, repairs or replacement
- Replacement of windows (Management Company is often responsible for individual apartment windows)
- Repairs to building fabric i.e. re-pointing of brickwork
Whilst more regular refurbishment might include:
- Interior common areas - redecoration of walls, ceilings and woodwork (usually includes external side of apartment doors & door frames)
- Re-carpeting and re-tiling of floors
- Exterior repainting of walls, surfaces, balconies, railings and woodwork
The usual method of calculating how much money should go into the fund each year is to take the expected costs of future works and divide it by the number of years which may be expected to pass before it is incurred. However this requires specialist expertise and an assessment of the building fabric, materials and plant to ensure that all the provisions are identified and adequately accounted for such as the expected life of plant and equipment which will depend on the item in question and will be influenced by:
- The quality of the original installation
- The type and level of maintenance carried out
- Technological advances which may make an item obsolete or difficult to maintain
- Legislation, particularly Health & Safety
In the absence of the Directors seeking this professional advice from a chartered quantity surveyor, ODPM can assist the directors in the preparation of a Sinking Fund Estimate using current best estimates and guidelines.