Vast majority of apartments need bigger sinking funds

The “vast majority” of apartment developments have not set aside enough funds for maintenance and refurbishment, according to a new report by the Society of Chartered Surveyors Ireland (SCSI).

Three out of four property managers say less than 25 per cent of apartment buildings have set aside adequate funding for such works, the report says.

And almost 90 per cent of managers say apartment buildings under their management – also known as multi-unit development (MUDs) – have been forced to raise additional levies. This arises when inadequate funds have been set aside and urgent spending is required.

The money that apartment owners set aside to refurbish and upgrade key common services in a complex such as lifts, roofs, pumps, fire alarm systems, boilers, carpets, etc are known as “sinking funds”.

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The SCSI report warns that if a complex has an inadequate sinking fund and is unable to undertake these projects, the standard of the property will reduce, residents’ living standards will fall, and their health and safety may even be compromised.

In terms of making provision, the SCSI says lifts ought to have a lifespan of 20-25 years, while water pumps last up to 15 years, as do boilers. Fire alarms and carpets should survive for about a decade.

The report, Sinking Funds in Apartments – Meeting the Challenge, collected data from nine large managing agent companies that provided data on 632 developments containing 52,600 properties.

‘Worrying’ findings

The lead author of the report, Finbar McDonnell, described the findings as “worrying” and said the issue needed to be addressed “urgently”, not just by Government, but also by individual apartment owners.

“The vast majority of property managers told us that the reason apartment buildings haven’t set aside sufficient funds is because property owners do not wish to pay increased service charges now, in order to build a sinking fund for the future,” he said.

“In the MUD Act 2011, it was suggested that all owners contribute €200 annually to a sinking fund. This guideline figure has been found in many cases to be much less than is required.

“Any future amendment to the MUD Act should make it a requirement that a dedicated sinking fund be established from year one. For new MUDs, we believe the sinking fund contribution should be included in annual charges to owners from the outset.”

Mr McDonnell said apartment owners needed to prepare “building investment fund reports”, which quantify the cost of a building’s wasting or depreciating assets, and the funding required to maintain or replace them.

According to the study, six out of seven MUDs have not prepared such a report. Mr McDonnell said this “head in the sand” approach would lead to “huge problems” for owners in the future.

There are more than 204,000 occupied apartments in the State, according to the latest census. Mr McDonnell said the numbers were likely to increase further in the coming years.

“Apartment owners, estate agents and all other stakeholders need to be better educated about sinking funds and how having an adequately resourced one is in their own interests and represents an investment, not a cost,” he said.