Does your society have a sinking fund? - 29th Nov 2006 ( Moneycontrol.com )

In the recent past, many old buildings have collapsed due to lack of repairs and negligence. It is your responsibility to not only look into the upkeep of your home but also your entire building. Most new buildings will start requiring regular repairs and maintenance after the first 7-10 years and expenses can start at Rs 5 lakh and go up to Rs 25 lakh or even more. If repairs are not done regularly, the building is at a risk. So start taking care of your society before it gets too late. The question is 'how' and the answer lies in building a fund called 'sinking fund'.

Sinking fund may be used by a society for reconstruction of its building or for carrying out structural additions or alteration to the building, as the society's architect deems necessary.

Says lawyer, Sunil Ramani, "As per the bye-laws of Co-operative Societies Act, it is a statutory obligation for all the co-operative housing societies to collect sinking fund. This is done so that in case the building needs to be repaired or reconstructed in the future, the society has sufficient funds to carry out the work."

Opines Chetan Narain, Director of residential property, Narain Corporation, "Sinking fund is fixed saving for a society. It is more like a piggy bank, which can be used to repair buildings or during emergencies. My society, Lokhandwala Complex, is going through renovation that includes painting, reconstructing lobby, leakage check so on and so forth. The estimated expenditure is about Rs 23 lakh. Quite luckily, we already have Rs 12 lakh in our sinking fund, which has helped us in a big way."

For carrying out major repairs, prior permission of the registering authority is needed after which a resolution must be passed at the general body meeting of the society.

Amount to be contributed by each member

The amount to be contributed towards sinking fund by each member is decided by the general body of the society. It should be at least 0.25 % per annum of the cost of each apartment, excluding the cost of the land. However, the general body meeting of the society can decide about the quantum of amount to be recovered from members towards sinking fund. That means, a sum higher than 0.25% can be collected if the general body deems fit so.

Avers property lawyer Vinod Sampat, "The amount can be increased or decreased by the general body. However, while fixing the amount, due regards should be given to the minimum amount of contribution towards sinking fund to be collected from members as per the provisions of bye laws. Also note that the value of land is not included because at a later date only the construction cost has to borne by the society."

Narain states that the contribution is done on monthly basis depending upon the area of the apartment.

In case of a rented apartment, its the landlord who will have to contribute towards the sinking fund and not the tenant. However, if the landlord sells his house, he will not get his contribution back.

But is the sinking fund enough?

"Considering the given rate of contribution of 0.25% per annum, many a times the amount is so meagre that it does not facilitate the purpose of redevelopment," informs Ramani. This is because in case of ownership flats in co-operative societies, most members are reluctant to pay towards the sinking fund. That apart, there are disputes between the members too over redevelopment issues. Therefore, a better solution is upwardly revising the sinking fund percentage periodically, ideally after every five years, since the cost of construction material and labour is always rising with inflation.

However, if the sinking fund balance is less than the estimated cost, each member will have to contribute as per the stipulated cost of repair worked out and the shortfall is to be collected on the basis of the area of each flat. But then  note that repair costs of common amenities such as compound wall, pump room, society office among others will be distributed equally among all the flats irrespective of the flat size.

By Kamiya Jani