5 Beneficial Uses of the Condominium Sinking Fund

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Some residents may wonder why aside from the common facility fee, they must also contribute to the sinking fund. The purpose of the sinking fund is to have ready cash to spend in times of dire emergency and other unforeseen circumstances. The collection and maintenance of the sinking fund is in accordance with condominium law which stipulates that the committee or the juristic person management must be responsible for.

On the day of the transfer, aside from preparing the payment for the unit, the buyer also must prepare the contribution to the “sinking fund”. This contribution is a one-time payment according to the law. The amount is related to the size of the unit being bought. The limit of the contribution to the sinking fund is set at no less than 10 percent of the monthly expenses or of the management fee that may occur at that condominium project.

The five objectives applicable to the use of the sinking fund are:
  • 1. For use as a revolving fund during the launch of the project when collection of the common fees has not yet been completed and inadequate for monthly expenses. However, once all the management fee collection is completed and adequate, the advanced amount must be put back into the sinking fund.
  • 2. For the purchase of common assets such as expensive but necessary assets that the committee or the General Meeting must agree upon.
  • 3. For use as a reserve fund for emergency reparations.
  • 4. For major reparations
  • 5. For the purchase of other necessities per the resolution of the committee meeting or the Co-owners Annual General Meeting.
The existence of the sinking fund for emergency situations will be a good provision that will give us the peace of mind. However, if money is drawn from the fund without any means to replenish it, the fund will one day be depleted. This problem is generally remedied at many juristic persons by reaching an agreement at the annual general meeting to increase the common fee. But this does not solve the problem at its root cause, because if there will be further expenses, there could be unending increases in the common fee.

The sinking fund can be managed in a way that it will earn interest. Some juristic persons simply keep the fund in a savings account. But if a condominium project has a good management, the committee would decide to put the budget set aside for middle- and long-term spending in a fixed deposit or a fund that guarantees the principle amount. This way, the returns would be better than simply putting the entire amount in a savings account.

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