Management rule 22 of the Sectional Titles Schemes Management (STSM) Act no. 8 of 2011 requires trustees to provide a comprehensive progress report of the 10-year plan to all members at the annual general meeting (AGM). The Act also specifies that major capital items, such as exterior painting, waterproofing, roof replacement, security system upgrades, driveway renovations, modernising elevator cabs and upgrading to energy-efficient lighting, must be included.
Deficiencies in the Act
Unfortunately, the STSM Act does not provide much guidance as to how the maintenance, repair and replacement plan (MRRP) should be set up. This places the onus on the trustees to prepare as broad, or as narrow, a maintenance plan as they see fit. Herein lies the dilemma.
Calculating capital expenditure contributions
The goal of the MRRP is to make provision for the future replacement costs of capital expenses. The STSM Act provides the following formula to calculate capital expenditure contributions:
Estimated Cost – (minus) Past Contribution / (divided by) Expected Life.
Estimated cost is defined in the Act as the estimated cost to maintain, repair or replace a major capital item while expected life is defined as the estimated number of years before it is expected that the cost of maintenance, repair or replacement of a major capital item will be incurred.
In order to calculate future replacement cost, it is important to be aware of any past contributions to a specific capital item as well as the anticipated escalation of costs. This will complete the data required to do the calculation.
Advantages of updating 10-year plans regularly
By updating the maintenance plan regularly, trustees can plan ahead and obtain competitive quotes for scheduled maintenance work, allowing them to plan more accurately for the subsequent financial years. Moreover, this ensures that trustees are compliant in their fiduciary responsibility.
When the plan is kept up-to-date, maintenance works are less likely to fall through the cracks. Adding and adjusting data points also allows for the cashflow projection to be fine-tuned continuously.
Another natural advantage of an up-to-date plan is that it will not be done in haste prior to the next AGM where details may be missed or mistakes may be made. A current plan allows body corporate members to make an informed and confident decision for the following year, knowing that the base of their decision-making is concrete.
Consequences of not updating a 10-year plan
By failing to keep the 10-year plan updated, trustees will not be able to accurately keep track of planned capital expenditure, which will most likely lead to an incorrect levy calculation. It can also result in a lack of funds for planned maintenance work, not to mention unplanned emergency repairs.
In addition, a delay in updating the maintenance plan may necessitate special levy to cover unexpected maintenance costs, putting undue financial pressure on the body corporate.
Trustees will be able to see what a difference a well-constructed and regularly updated 10-year maintenance plan can make to a scheme. It is highly recommended that trustees commit to keeping their maintenance plan up-to-date at all times.