Many people who are looking to move into or are already living at a gated community or condominium that is run by a juristic person will experience being charged for the common expense. Or they might be charged an amount for the sinking fund, which is among the expenses that will be incurred after the completion of property transfer and before moving in. Unsurprisingly, the following questions usually come to mind when encountering the aforementioned expenses:

• What is the common expense collected by the juristic person?
• What is it used for?
• How does each juristic person calculate the common expense?
• The practices involved in a juristic person’s management of finances, accounting and budget?
• Can the fees collected be managed to provide future returns?

If any of these queries are yours, PLUS has the answers to them.

01 What are the components of the common expense?

Buildings will continually deteriorate, unless there is appropriate upkeep. Maintenance affairs are therefore necessary, and expenses will be incurred from said affairs, the amounts of which will depend on the scale of the maintenance burden. The expenses of a juristic person may be split into 2 categories:

1. Operating expenses are spent on promoting an appropriate living environment and providing common services that contribute to a good quality of life for residents. One characteristic of this categoryof expenses is recurrence and continuity. Such expenses include utility bills (power and water), management service fee, taxes and dues.

2. Expenses for maintenance and preservation of value are spent as necessary on improvements and replacements, in order to return the common facilities to good order and to preserve the value of assets. These expenses have the characteristic of occurring sporadically. They include, for example, expenses associated with repainting building walls and improving the swimming pool.

It is of paramount importance for the juristic entity to spend funds properly and in accordance with the objective of each type of fund. Utilising a fund outside of its scope could compromise the quality of building maintenance and work operations. When the appropriate time arrives, the juristic entity should make decisions to utilise funds for restoration work, replacing equipment, revamping building systems and making improvements to buildings.

Swimming pool at hasu HAUS – one of many amenities that require constant maintenance

02 What are the common expense and the sinking fund? 

Every condominium juristic person needs to collect a fee from each co- owner, to be used as its budget and as capital for proceedings that will benefit all co-owners in general. Contributing the money needed for upkeep is the joint responsibility of every co-owner, each of whom will benefit from the gains that would be made from expending this money. The juristic person will bill each co-owner for the common expense and the sinking fund.

1. The common expense is collected from each co-owner based on the area of the condo unit. It is used to fund operational expenses that occur regularly, promote an appropriate living environment, and provide common services that contribute to a good quality of life for each and every resident.

2. The sinking fund is collected in a similar manner as the common expense, and is withheld for disbursement toward functions of maintenance and preservation of value. Generally, the fund is drawn from after the building has progressed through a period of use. A building will continually deteriorate, and each building component has its own lifespan. This necessitates the collection of the sinking fund charge, which may occur more than once. However, the first round of collection occurs upon the purchase of a new condominium unit.

03 Where do budgets come from, and what are the principles of budget management and disbursement?

Many of you may wonder whether the juristic person has any other source of income aside from the common expense and the sinking fund. In addition to these two sources, funds may be collected from a lessee of a space, co-owners paying the utilities and public services bills under the rates stipulated by the assembly of co-owners, other services and various fines. The funds generated from these additional sources augment the income from common expense collection. Some condominium projects have been able to reduce the burden stemming from raising the common expense, by securing additional income.

The management at Plus Property-administered projects have been presenting income generation and item-specific expense reduction plans to the board at each project, in order to bring about greater efficiency in securing benefits for co-owners through management. Examples include the leasing of billboard space, and obtaining rent from commercial spaces such as coffee shops, convenience stores and vending machines.

Income from rent and electricity charge at the 7-11 vending machine at blocs77

On the other hand, expenses may be reduced by setting air-conditioner hours in the common areas to save on electricity. Simple sprinklers can be made in-house to help cut down on the water bill. Repairs may be achieved by modifying and recycling existing materials, in order to avoid having to purchase a full set of new materials or to allow for some savings.

Waste sorting enclosure made by the technicians at THE BASE Park West

04 How is the common expense calculated?

The collection rate for the common expense originates from the annual operating plan which the management and the board had presented to the co-owners. The rate is based on the expenses that are projected to occur. It is generally derived from combining the sum of projected expenses and the reserve amount and dividing this figure by the total area found in all units at the condominium. The rate is usually presented in baht per area (such as baht/square metre). Thus, the common expense due for each co-owner may vary depending on the size of the co-owner’s unit. As an example: If the rate for common expense is 50 baht per square metre per month and you own a unit that is 40 square metres in size, the common expense will be 50 X 40 = 2,000 baht/month. To express this in a yearly basis, you will pay 2,000 x 12 = 24,000 baht per year. 

The collection rate for the common expense is subject to change, depending on requirements and economic viability. But the rate will always need approval from the general assembly. There is no standard rate for common expense among the various juristic entities that manage condominiums, due to the numerous differences among each project. Said differences include the quality of materials and construction, the size of projects and the spaces within them, the lifespan of building systems, the characteristics of building use, and the demands and expectations of the co-owners.

Introducing the My Account function on the Living Plus application for paying various fees

All co-owners are reminded to pay the common expense on time. Failing to pay fees within the timeframe stipulated in the regulations will result in fines. Neglect by co-owners to share in the responsibility on expenses is a precursor to a decline in standards at a property project, and could negatively influence the value of each co- owner’s property in the end.

05 Why is it necessary to manage finances and accounting?

Managing finances and accounting are part of the juristic person’s responsibilities, as stipulated by law. This function has great importance, as co-owners who pay for expenses demand transparency and accountability. In turn, the co-owners are able to entrust the management with spending the money provided to them in the form of the common expense. This function of the juristic person encompasses the following:

• Planning the finances – making projections for incomes and expenses that will occur.
• Establishing the annual budget for the operation of the juristic person.
• Keeping monthly accounts ready for inspection, including accounting reports on the incomes and expenses occurring in a respective month as well as the record of incomes and expenses for the previous month.
• Creating the annual balance sheet in order to report on the asset and contingent liabilities attributable to the condo juristic person.

06 Planning the juristic person budget 

The budget plan calls for enough funds to be allocated toward the operations of the juristic person each year, and is the responsibility of the juristic person board. The preparation of the said budget requires advance, careful planning. An ill-planned budget that is unable to sufficiently meet expenses is a major cause of deterioration and value depreciation at condominiums, and could hamper the safety and convenience of co-owners and everybody else in the community.

Training on analysis of financial statements and accounts, and budget planning, by Plus Eduplex

Budget planning involves making predictions that allow for sufficient funds to be prepared to meet the expenses required to maintain common assets and provide the expected common services. In principle, funds are sufficiently allocated and a reserve amount is provided in order for the work quality to meet the stipulated target. Categorising within the budget should adhere to the relevance with the spending purposes; this would also allow ease in follow-up and reporting on results. Generally, the budget may be divided into two groups:

1. Operating budget. This is used to pay for utilities, procurement of services, administrative fees, maintenance, materials and equipment, meetings, activities, insurance and taxes.

2. Upkeep and value preservation budget. This is used to pay for repairs and replacements, such as those made to water pumps or light fixtures.

Maintenance of pool lounge chair keeps the item looking brand-new

The juristic person should expend the budget efficiently. Spending should be made on necessary matters and funds should sufficiently be allocated to yield results that are up to standard and meet the quality level called for by the resolution of the general assembly. A clear order of importance should be observed when preparing and expending the budget. Generally, safety should be at the top of the hierarchy and followed in order of importance by convenience, and preservation of the value of assets. At the same time, skimping or dragging out on paying for necessary matters could exacerbate these problems later on.

07 Budget development
Budgeting by a residential community’s juristic person might consist of two major forms, as follows:

1. Operational budgeting takes into account the real expenses that occurred over the previous year and reliable price data from service providers or distributors.

2. Budgeting for upkeep and value preservation takes into account the condition, years in service, and past statistics of the building and building systems, as well as the fees charged by service providers.

Repair of wood flooring, to maintain safety and a good image of the project

The range of each expense generally depends on the quality level desired by and the standards that are acceptable to the juristic person – these, in turn, have been agreed to by the co-owners. Operating expense will gradually increase in accordance with inflation and economic conditions. Once the building ages, repair, maintenance and replacement costs as well as overhaul and renovation costs will increase for expired or deteriorated facilities – an aged building will therefore incur higher expenses than a building that has recently been completed.

How are you feeling after reading up on the origins and workings of the juristic person’s budget and its management? There is a significant amount of minor details to it all. Please remember to pay the common expense, as shortfalls in common expenses collected from co-owners will result in an insufficient budget for maintaining the common area. Consequently, the building could deteriorate rapidly and the value of co- owners’ properties will ultimately be affected.

The selection of the juristic person team for managing the residential community is no trivial affair. A professional juristic person team will manage the community properly by creating an atmosphere conducive to living while upholding transparency and accountability; all of this will allow co-owners to have peace of mind. 

PLUS believes that its Living Management approach to administering residential communities has a wider scope than the affairs of a juristic person. It touches all facets of living and is not limited to facilitating convenience, upholding regulations or maintaining buildings. The approach calls for other aspects of residents’ needs to be fulfilled. At the same time, managing the budget optimally is among the concerns that PLUS places importance in.

Related Article:

• How Plus Living Management Can Help with Project Administration
• 5 Questions to Ask Yourself for Choosing the Right Property Management Company
• 5 Things to Know Before Paying Common Facilities Fee at Housing Sub Division or Condos

Plus Property is a full-service professional property and facility management agency. With more than 20 years of experience, PLUS manages residential and commercial properties through its team of quality professionals, heeding to all types of demand. Give us a call at 02 688 7555 to get more details about property management, or click here to learn more about our services.