The Significance of Establishing a Sinking Fund for apartment developments in Ireland
Section 19 of the Multi-Unit Developments Act 2011 outlines the necessity and management of a building investment fund, commonly known as a ‘sinking fund’. This fund serves as a reserve for unforeseen expenses and is governed by specific guidelines for its collection and utilization.
While apartment owners may perceive the sinking fund as an additional annual expense, it should be recognized as an essential investment in the building’s upkeep and enhancement of its overall value. The MUD Act suggests a minimum yearly contribution of €200 per unit, but given the substantial costs associated with major maintenance works, this amount may be insufficient.
It’s crucial to understand that sinking funds are not intended for covering day-to-day operational expenses of the Owner’s Management Company (OMC). Instead, they are designated for financing non-recurring works such as refurbishment, improvements, maintenance, and seeking advice from qualified professionals.
To illustrate the importance of sinking funds, consider the following life-cycle maintenance issues that may arise during ownership of a property in a Multi-Unit Development:
Major roof repairs every 20+ years dependent on roof materials, design and finish. Some roofs can last up to 50
Periodic replacement or refurbishment of lift carriages
Updates to fire safety measures in response to regulatory changes
Resurfacing or remarking of car park tarmac every 15-20 years
Engagement of consultants for planning or structural assessments
Replacement of intercom systems
Redecoration of common areas
Formulating a planned maintenance schedule, possibly with the assistance of a building surveyor, can help the OMC effectively manage the sinking fund. It is advisable to allocate funds toward addressing one major maintenance item annually, ensuring the long-term sustainability and upkeep of the property. It is also recommended that regular (monthly) inspections of the building and grounds are carried out by your Property Manager, this will pick up on small details and various potential risks.
The Society of Chartered Sureveyors in Ireland (SCSI) & RICS have prepared a useful PDF Guide on this subject available here from 2018.