The Contingency Fund Debate
Let’s face facts; with added economic pressures on unit owners, it’s harder for committees to get communal fees in, let alone an additional amount for a contingency fund.
As a result many are reluctant to ask owners for anything more than the absolute minimum to operate the building, as they are worried that if the charges are higher people just won’t pay.
Keeping costs down is a good idea, but you must be careful not to cut from the wrong places. One of the most common mistakes is to cut the maintenance budget or worse, remove it.
If you don’t keep on top of the small maintenance jobs, many of these small items will worsen over time costing more to finally fix later. This can end up with a development that looks tired, poorly maintained making it more difficult to find tenants, creates bad reviews from holiday guests etc. The end result, owners don’t want to pay their charges.
So actually by trying to keep owners payments low, hoping this will increase collections, you can inadvertently make things worse.
Emergency Maintenance, how much to save?
I generally advise people to allocate 10% of the normal expenses budget for unexpected maintenance during that year. However if you have a backlog, you may want to allocate an initial lump sum to clear the backlog, then a 10% annual fund to keep on top of it.
What about forward planning?
In addition to emergency and small maintenance works, there are larger items which require less often but higher cost maintenance or replacements. With these types of items it is good practice to spread the expected cost over the expected lifespan of the item.
For example: A lift in an 8 unit building, expected life 20 years, then it will need a 10,000 refit. It is advisable to include in the annual contingency budget 500 per year to cover this future cost (avg. 62.50 per unit per year).