What are Sinking Fund Budget Reports?

The aim of a Sinking Fund Budget Report is to pre-emptively account for any irregular maintenance or capital works.

Recent construction costs have risen by an incredible 36% over only a 12 month period and the Housing Industry Association’s Trade Cost Index continues to show that there is an undersupply in many trade areas keeping an upwards pressure on costs.

As the cost of building materials and labour continues to raise, so does the associated costs of maintenance such as scaffolding and adhering to safe work practices. Without adequate preparation, Strata Corporations are faced with mounting expenses that could have been foreseen.

New legislative requirements…

Changes to the Community Titles Act and Strata Titles Act were implemented in October 2013 to improve forward planning and to encourage Sinking Funds. The changes require a Sinking Fund Budget for all community corporations that have 2 or more lots, which can be easily facilitated through a comprehensive Sinking Fund Budget Report from Solutions in Engineering.

How often should I update my Sinking Fund Budget?

These changes now require a 3 year Sinking Fund Budget for strata corporations of 7-20 lots and a 5 year sinking fund budget for corporations with more than 20.

What you can expect from our professional forecasts…

  • Forecasts compiled using our custom designed software developed to calculate the lowest possible levy whilst still maintaining sufficient funds to meet expenditure needs
  • Rates used in calculations obtained from contract rates and relative industry sources, not just estimating schedules, to ensure your forecast is accurate
  • Simple, comprehensive, easy to read reports which include tips for extending the life of many high maintenance items
  • Communication that ensures important issues are discussed
  • Protection of $20 million Public Liability & $10 million Professional Indemnity Insurance

Courteous, easily identifiable and professionally dressed inspectors who are willing to spend time with a Strata Corporation representative on the day.

Meeting your Sinking Fund Budget requirements are made easier with good quality, professional help. Solutions in Engineering are backed by over 30 years’ experience and the backbone of the engineering discipline.

What needs to be done and which buildings must comply?

Work Health and Safety Act 2012 requires a person conducting a business or undertaking (PCBU) to engage a competent person to identify all Asbestos Containing Materials (ACM) within their building.  A PBCU is also required, where asbestos is found, to keep an onsite asbestos register, which is to be available for employees, contractors and volunteers when working onsite, as well as having an Asbestos Management Plan prepared for the property.

All buildings that were built before 1st January 2004 should comply. Why this date? It may surprise you to know that while asbestos in the form of Crocidolite was phased out from 1967, asbestos in the form of Amosite & Chrysotile (white asbestos) were used until late 2003.

What are the penalties if I do not comply with these regulations?

Under the Work Health and Safety Act 2012, the maximum penalty for non-compliance is a $3,000,000 fine. There is the further potential risk of civil litigation.

Who has a duty in regards to asbestos?

The How to Manage and Control Asbestos in the Workplace Code of Practice provides guidance on minimising asbestos-related risks for PCBUs with management or control of a workplace, such as the common property in a strata scheme. The Code provides that the person with management or control will usually be the owner of the workplace or a representative of the owner and may:

  • own the workplace and engage workers to carry out work there … or
  • have management or control over the workplace, for example, a property management group or agent.

Therefore, in the case of a Strata Title Body Corporate, both the Body Corporate and Manager are potential duty-holders under the law. All share responsibility and will likely be liable for statutory fines.

Who can I use to complete the survey?

Asbestos surveyors do not have to be licensed or approved by the relevant regulator. However, the person engaging them must be satisfied that they:

  • Are properly trained to handle and take asbestos samples
  • Have the knowledge and experience to identify suspected asbestos
  • Are able to determine asbestos risk and controls measures
  • Are familiar with building and construction practices to determine where asbestos is likely to be present
  • Are able to determine that material may be friable or non-friable asbestos and evaluate its condition.

Keep in mind that using a competent person is your responsibility and that the inspection company takes no risk – the risk remains with the responsible person. Solutions in Engineering have efficient, competent inspectors and will ensure that your building is as safe as possible.

How often does the common property need to be re-inspected?

If asbestos is not removed but is left intact onsite in a stable condition, then we recommend that the common property ire-inspected every 12 months. The legislation requires every five years, however there are a number of reasons why asbestos must be monitored, including:

  • ACM is particularly dangerous, and risks can change rapidly;
  • ACM continually degrades and must be regularly monitored and maintained safely;
  • ACM is often damaged by activities around a building.

What about the risk from civil litigation?

The biggest concern for Committees and Managers is the Risk from a civil claim from a person who has contracted a life threatening illness as a result of residing, working in, or visiting a building containing asbestos which has not been properly managed. For a Community Corporation to have any chance of defending itself from such a claim it would need to show that it had properly identified, managed and where necessary eliminated any asbestos risks.

You can easily meet your obligations with SIE’s service that:-

  • properly identifies asbestos risk; and
  • manages your asbestos risk; and
  • Where necessary, shows how to eliminate your asbestos risk

Your recommended implementation plan

Step 1 – Get Surveys completed

  • Identify competent survey company, like Solutions in Engineering
  • Order surveys for all buildings completed prior to 2004
  • It is strongly suggested you preorder the required onsite Asbestos register and management plan in the case where asbestos is found

Step 2 – Implement Survey Recommendations

  • Keep all asbestos documentation onsite
  • Ensure contractors are aware of asbestos documentation

You can rely on Solutions in Engineering’s competency and experience. We have been supplying you with Asbestos surveys for over a decade.

Recent bushfires, earthquakes and floods have inflicted millions of dollars worth of damage to buildings.  Now owners are realising the vital importance of an accurate, up to date Insurance Replacement Valuation

 The recent fluctuation in the market for building materials and skilled tradespeople has resulted in many buildings currently being underinsured. Being underinsured can ultimately cost your owners a lot more money.

Under the provisions of the Strata Titles Act 1988, the Strata Corporation has an obligation to insure the building for its full replacement value.

Section 30 sets out the requirement for the Strata Corporation to insure the building: ‘A strata corporation must keep all buildings and building improvements on the site insured to their replacement value.

Section 30 (2) sets out what ‘replacement value’ includes: ‘The replacement value of buildings and building improvements is the cost of their complete replacement including the cost of any necessary preliminary demolition work, any necessary surveying, architectural or engineering work and any other associated or incidental costs.’

A professionally prepared Insurance Valuation thus allows an Strata Corporation to fulfil its obligations under the Act and be insured if all or part of the building is damaged in a disaster.

Too many get it wrong

Many Insurance Valuation providers use simple and quick calculations method.  Work out the floor area of the whole building and then multiply it by one rate per square metre…

Simple but not close to accurate.

Here is an accurate valuation calculation approach

 To get the right value, a professional will divide the different areas of the building and multiply them all at different rates based on differing levels of finish, area uses and types and quantities of construction materials used.

For example there are massive differences in construction costs for different areas like open balconies compared to closed fire

escapes & common hallways, or cross-flow ventilation car parks compared to enclosed or underground car parks.

Buildings with other improvements and assets need to be calculated too; like the type, speed & floors covered by a lift, levels of fire safety barriers and equipment.

Allowances cost escalation caused by floods, cyclones and other disasters

 There have been a number of natural disasters in Australia’s history and the data collected from these allow calculations to be made that account for the affects. When a disaster happens there is usually a massive increase in demand with limited supply. The economic drivers of supply and demand kick in and re-construction costs rise. The three events that we use as a benchmark for our cost escalation calculations are:

  • After Cyclone Tracy (Darwin in 1974) – 28%
  • After the Newcastle earthquake (1989) – 32%
  • After the ACT bushfire (2003) – 50%

The cost of new building codes while redeveloping

 Another contributing factor to increased costs in the redevelopment of buildings after devastation, are the new building codes (fire and floods in particular) introduced over the past few years. Whist the majority of new strata buildings, both low and high raise, conform to these new codes, many older buildings do not.  As a result, there is the possibility that replacement costs can be higher.All must be taken into account if you want an accurate Insurance Replacement Valuation.

A comparison with building design

 There is a parallel with engineering design, a lazy engineer can simply over allow for tonnes and tonnes of extra concrete and reinforcing steel costing the eventual owners tens or hundreds of thousands of dollars each.

If an Insurance Replacement Valuations is completed by a lazy quantity surveyor or valuer they often use massively excessive rates per square metre for all parts of a building regardless of finishes, height above or below the ground or amenity.  Lazy over calculations end up costing the building’s owners money and ultimately makes the person who engaged them look bad.

On the other hand when engineering building design is done properly the engineer accurately calculates the wind, weight and design loads so that the structure incorporates the required building strength with a safe margin above it. A quality Insurance Replacement Valuation is approached in exactly the same manner.

Your insurance renewal form filled out for you

 Filling out insurance renewal forms takes you time with insurance companies requiring answers to questions about the building fabric and amenities. SIE has worked with the insurers to determine exactly what they want to know and created a generic form acceptable to all insurance companies.SIE fills the renewal in for you, all you have to do is send it off to the insurance company. Job done! Another way using SIE makes you more efficient and saves you time.

Experience you can rely on

 You will not get a valuation based on the ‘pro-forma’ method where an office junior takes a drive-by photo and a general construction rate is applied to the whole area of the building.Solutions in Engineering employ experienced valuers and quantity surveyors who systematically break down your building’s replacement costs to the necessary level of detail so your replacement cost estimation is completely accurate.  This ensures you get a professional report you can rely on every time.

What is the Work Health and Safety Act 2012 (SA)?

The Work Health and Safety Act 2012 (SA) has dramatically affected the manner in which a Community/Strata Corporation or an owner must consider their duties under the law, especially in regard to the health and safety of any workers engaged on their common property.

What are the penalties if I do not comply with these regulations?

Under the Work Health and Safety Act 2012, the fines are:

$3 million for community corporations $600,000 for individuals (committee members & managers) and/or 5 years jail.  These fines are the maximum possible and would apply to serious accidents. In addition to this there is also a high risk from personal injury litigation.

What common property obligations does a Strata Scheme have?

As well the Work Health and Safety Act 2012 (SA), there are technical legislative obligations for safety that comes from over 22 other pieces of legislation such as the Building Act, Strata Title Act, Community Titles Act and the Australian Standards relating to provisions over such diverse issues such as balustrade heights, electrical safety and equipment checking regulations.

Who are the responsible person(s) under the legislation?

The Act places duties upon a ‘person conducting a business or undertaking’ (PCBU) which are owed to a ‘worker’. Per the definition of a PCBU in the Act, a PCBU could be:

  1. An Community/Strata Corporation;
  2. The occupier of the lot;
  3. A caretaking service contractor or letting agent;
  4. A Strata Body Corporate Manager.

Likewise, a ‘worker’ under the Act could be:

  1. An employee;
  2. A contractor or subcontractor;
  3. An employee of the contractor or subcontractor;
  4. Any person who receives direction from a PCBU while on the property (For example, a volunteer).

As persons conducting a business or undertaking, you have obligations to ensure the risk of injury or illness is minimised for persons coming into or leaving the property, visitors and workers alike.

In most cases there will be more than one person with management or control. All share the responsibility and will be drawn into any fines or prosecutions for non compliance. It is hard to conceive that both the building owners/committee and the strata and building manager will not fit into one of the definitions above.

Do all buildings have to comply?

There is a highly conditional exemption that will rarely apply to the common area of residential strata buildings under Section 7 of the Work Health and Safety Act 2012. This exemption does not apply if:

  • The Community Corporation has engaged a service contractor or letting agent;
  • One or more of the occupiers of the lots conduct a business (including a home business) from their lot and their lot is accessible via the common property;
  • One or more lots are used for short-term accommodation
  • Owners directly employ people. E.g. Cleaners and baby-sitters

As it is almost impossible to ensure that occupiers do not conduct business from their lots (which may include working from home in any capacity, eBay selling activities and multi-level marketing) so the reality is that this exemption has very little application and should not be relied upon at all.

What about the risk from civil litigation?

Often a bigger concern than WH&S for building owners and managers is the Risk of a civil claim from a person who incurs an injury or illness as a result of residing or working in, or visiting a building which has not properly managed the WHS obligations.

For a Community Corporation to have any chance of defending itself from such a claim it would need to show that it had properly identified, managed and where necessary eliminated any WHS risks.

Won’t our insurance pay for fines and penalties?

No. The insurance policy, in almost every case does not cover you for fines, penalties or punitive damages awarded by courts.  Your policy will require you to meet all your statutory obligations, which includes meeting the WHS requirements.

 What do you need to do to meet your obligations?

Engage a suitably qualified and experienced company conduct the following steps based on the relevant Australian Standards:

  1. Inspect the common property and provide a report that clearly identifies hazards;
  2. Assess the risks that may result from those hazards;
  3. Assist you to decide the control measure to prevent, or minimise the level of risks present and future
  4. Provide the necessary tools to allow you to implement control measures in a hassle free manner
  5. Monitor and review the effectiveness of these measures annually or upon request.

Why should the report be completed annually? 

Hazards are constantly changing, new cracks can form, plants can grow and legislation can change. Under the Work Health and Safety Act 2012 this should be regularly monitored and reviewed to meet your duty of care.

You can easily meet your obligations with SIE’s service that will:-

  • Clearly identify hazards and provide digital photographs illustrating their locations;
  • Assess risks that may result because of the hazards;
  • Assist you in deciding on control measures to prevent, or minimise the level of risks present and future;
  • Provide necessary tools to allow you to implement control measures and take the hassle out of compliance;
  • Monitor and review the effectiveness of these measures as needed by you;
  • Provide a basic introduction to the important elements of Work Health and Safety and Risk Management;
  • Provide telephone support in the event of an incident to advise what should be done and how;
  • Provide policies and procedures for engaging and managing commonly used contractors and commonly performed tasks.

Community Corporations who refuse to spend money on risk management and maintenance are your biggest risk.  Their common property is where accidents are likely to happen. Don’t let them put you at risk.