The Sinking Fund Explained: Why It Matters More Than You Think

What Is the Sinking Fund?

Every body corporate scheme in Queensland maintains two separate funds. The administrative fund covers day-to-day running costs — insurance, management fees, routine maintenance, and utilities. The sinking fund is different: it is a long-term savings account set aside for major future expenditure on common property.

Think of the sinking fund as a building's replacement reserve. Over decades, every building needs significant work — repainting, re-roofing, resurfacing, replacing ageing infrastructure. The sinking fund ensures the money is available when those costs fall due, rather than hitting all owners with a large special levy at short notice.

What Does the Sinking Fund Pay For?

Sinking fund expenditure covers major capital works, not routine maintenance. Examples include:

Repainting the building exterior
Replacing or repairing the roof
Resurfacing the driveway or car park
Replacing pool equipment, lifts, or air conditioning plant
Major structural repairs
Remediation of building defects

Routine maintenance — garden upkeep, pool cleaning, minor repairs — comes from the administrative fund, not the sinking fund.

The 10-Year Forecast

The BCCM Act requires most schemes to have a current 10-year sinking fund forecast prepared by a suitably qualified specialist — typically a quantity surveyor or building consultant.

The forecast:

Inspects the common property and assesses the condition of major assets
Projects when significant expenditure will be needed over the next 10 years
Recommends an annual contribution level to accumulate sufficient funds by each expenditure date

The forecast is reviewed at every AGM. The committee uses it to set the sinking fund levy for the coming year.

Why Some Funds Run Short

The most common reason a sinking fund runs short is that levies were set too low for too long. This happens when:

Committees keep levies artificially low to avoid owner complaints
The forecast is out of date and does not reflect current construction costs
Major expenditure is deferred, creating a larger problem later
A building is older than its forecast assumed

A scheme with a chronically underfunded sinking fund is managing its way towards a crisis. When major works finally become unavoidable, owners face large special levies with little warning.

What to Look for When Buying

Before settling on a lot, always review:

The sinking fund balance: Is there money in the fund? A scheme with a near-zero balance and significant upcoming works is a red flag.

The forecast: What major expenditure is projected in the next 1–5 years? How much is currently in the fund to meet it?

The levy trend: Have sinking fund levies been increasing appropriately, or have they been artificially flat?

The building age and condition: Older buildings tend to have higher sinking fund requirements.

A body corporate search will show you the fund balance. A copy of the sinking fund forecast — obtainable from the body corporate manager — gives you the full picture.

The Right Level Is Not the Lowest Level

Owners who push for the lowest possible sinking fund levy are often making a short-term saving at a long-term cost. Adequately funding the sinking fund over time smooths out expenditure and avoids the financial and practical disruption of emergency special levies.

At your next AGM, review the sinking fund forecast and ask: is this scheme building its reserves at the rate the forecast recommends?

This article is general information only and does not constitute legal advice. For complex financial matters, consult a strata lawyer or the Office of the Commissioner for Body Corporate and Community Management.