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Why the Reserve Fund budget plays a critical role in the 10-year plan

On 10 July 2020 we hosted a Zoominar on the topic of 10-year maintenance plans where we received great feedback and further questions from the attendees. This blog article is dedicated to answering those questions.

For more basic and fundamental information about 10-year maintenance plans, please read our blog: What you need to know about 10-year maintenance plans.

Capital items

The 10-year maintenance plan must include a comprehensive list of the major capital items, listing each item’s present condition along with the future (estimated) maintenance cost and timing. The objective of the plan is to ensure that these items, that are often costly to replace, are included in the budget for routine maintenance to ensure an extended lifespan and use to the scheme.

Examples of capital maintenance items include exterior painting, waterproofing, lifts, roofs, swimming pools, intercom systems, boundary walls, and paving and driveways to name a few.

Maintenance for these items is budgeted for in the reserve fund to which each owner makes a monthly contribution via their levy payments.

New vs old buildings

One of the questions asked at our recent Zoominar was about whether it is necessary to make reserve fund contributions for new buildings, as all the capital items are still new and in perfect working condition. The reality is that the building will age, and its capital assets will require preventative maintenance at some point. For that reason, it is never too early to start saving toward the reserve fund.

It is also important to remember that the maintenance plan operates as a rolling 10-year plan, i.e. in year two of the plan, the scheme still needs to present a plan that covers 10 years which means that they will add an additional year to the plan (year 11, if you like). This practice is repeated every year where an additional year is added to the plan so that it always covers a 10-year period.

This ensures that the body corporate consistently has sufficient funds for the following 10 years’ capital-maintenance requirements.

Updating the plan

The Sectional Titles Schemes Management Act requires that schemes update their 10-year maintenance plan at least annually for approval at the body corporate’s annual general meeting (AGM). Scheme members get to view, comment on and approve the latest version of the plan which will determine their reserve fund levies for the next 12 months. It is prudent to keep the 10-year plan dynamic, updating it regularly whenever maintenance tasks are completed or costs confirmed.

Allocating maintenance costs accurately requires a firm understanding of the difference between the reserve fund and the administration fund, along with the ability to differentiate between operational expenses and capital expenditure.

By using our professional experience and referencing some valued industry resources, Mirfin is able to reasonably estimate maintenance costs, factoring in escalations over time when drawing up a maintenance plan. However, the onus remains on the body corporate to obtain quotations from specialist contractors and to update the plan accordingly.

Mirfin’s dashboard

For all existing customers, Mirfin offers access to our practical and useful online dashboard where users can update their 10-year plan whenever necessary. Normally, one representative of a scheme is provided with access to the dashboard where they will be able to make adjustments and access the most updated version of the reserve fund forecast.

Please visit www.mirfin.co.za to obtain a free quotation.