Maintenance Charges & Sinking Fund: What Every Strata Owner Should Know

In a strata development, maintenance charges are among the most important matters that every parcel owner should understand.

Many owners see maintenance charges merely as monthly payments. Some also assume that these payments only relate to the use of lifts, security guards, cleaning services or shared facilities.

In reality, maintenance charges play a much bigger role.

Maintenance charges are the main financial source that allows a strata building to be managed, maintained and kept in proper working condition. Without sufficient collection, the management body may face difficulties paying service providers, carrying out repairs, maintaining security and preserving the overall condition of the building.

Apart from maintenance charges, parcel owners should also understand another important fund, namely the sinking fund.

Both payments serve different purposes, but they are closely connected in ensuring that a strata development can be managed on a continuous basis.

1. What Are Maintenance Charges?

In simple terms, maintenance charges are payments imposed on parcel owners to fund the management and maintenance costs of a strata development.

These charges are used to pay daily and recurring costs required to ensure that the building, common property and shared facilities remain in good condition.

In a strata development, owners do not only own their respective units. They also share the use of lifts, corridors, lobbies, parking areas, security systems, swimming pools, gymnasiums, gardens, internal roads, main pipes and other shared facilities.

All these facilities and common property must be maintained. The cost of maintaining common property is usually funded through maintenance charges.

In simple language, maintenance charges are payments made to ensure that the building can continue to function properly for all owners and occupants.

2. What Is Usually Paid Through Maintenance Charges?

Maintenance charges are usually used to pay various daily management and maintenance costs.

Common expenses paid through maintenance charges include:

a. payments to security companies;

b. payments to cleaning companies;

c. lift maintenance;

d. swimming pool maintenance;

e. landscape maintenance;

f. electricity bills for common areas;

g. water bills for common areas;

h. property management costs;

i. minor repair works;

j. maintenance of access systems;

k. maintenance of CCTV systems;

l. building insurance;

m. audit fees;

n. administrative costs; and

o. other expenses related to the management and maintenance of the building.

This list may vary depending on the type of development. A high-end condominium may have higher costs because it has more facilities. A medium-cost apartment may have a simpler cost structure.

However, the principle is the same. Maintenance charges are used to cover the operational and maintenance costs of a strata development.

3. Why Must Owners Pay Maintenance Charges?

Owners must pay maintenance charges because they share the benefit of the common property and shared facilities.

Even if an owner rarely uses the swimming pool, rarely uses the gymnasium or is not always at home, the building still needs to be maintained. The lifts still need to be serviced. Common areas still need to be cleaned. The security system still needs to operate. Electricity bills for common areas still need to be paid.

In a strata development, the obligation to pay maintenance charges is not based on whether an owner personally uses every facility.

The obligation exists because the owner owns a parcel in a strata scheme and benefits from the existence and maintenance of the common property.

If every owner pays only according to the facilities personally used by that owner, the management of the building would become impractical and unstable.

For this reason, payment of maintenance charges is an important part of a parcel owner’s responsibility in strata living.

4. What Is a Sinking Fund?

Apart from maintenance charges, there is also the sinking fund.

The sinking fund is a fund usually used for major expenses, major repairs or long-term needs of a strata development.

If maintenance charges are used for daily operational costs and ordinary maintenance costs, the sinking fund is more focused on major or extraordinary expenditure.

For example, a building may require repainting works, major lift repairs, replacement of key systems, roof repairs, main pipe repairs or refurbishment works involving substantial costs.

Expenses of this nature are usually not suitable to be funded only from ordinary monthly maintenance charges because the amount may be substantial. That is why the sinking fund is important as a specific reserve for long-term needs.

5. Examples of Use of the Sinking Fund

The sinking fund is usually used for larger and longer-term expenses.

Examples of the use of the sinking fund include:

a. repainting of the building;

b. major lift repairs;

c. replacement of important lift components;

d. roof repairs;

e. main pipe repairs;

f. replacement of water pump systems;

g. repairs to certain structural components;

h. replacement of major security systems;

i. refurbishment of shared facilities; and

j. other major expenses relating to common property.

In simple terms, the sinking fund functions like a long-term reserve fund for a strata development.

Without a sufficient sinking fund, the management body may face difficulties when the building requires major repairs or replacement of key components.

6. Difference Between Maintenance Charges and Sinking Fund

Maintenance charges and the sinking fund serve different functions.

Maintenance charges are usually used for daily costs, recurring costs and ordinary operational expenses.

The sinking fund is usually used for major expenses, major repairs and long-term needs.

For example, monthly payments to security companies usually come from maintenance charges. The same applies to payments to cleaning companies, electricity bills for common areas and ordinary lift maintenance.

On the other hand, if the building needs to be repainted or if the lift system requires replacement of major components, that expenditure may involve the sinking fund.

Both are important.

Maintenance charges ensure that daily operations continue. The sinking fund helps provide funding for major needs in the future.

7. Who Determines the Rate of Charges?

The rate of maintenance charges and sinking fund contributions is usually determined based on the financial needs of the development, budget, operational costs, condition of the building and decisions made in accordance with proper procedure.

Factors that may affect the rate of charges include:

a. size of the development;

b. number of parcels;

c. amount of common property;

d. type and number of shared facilities;

e. cost of security services;

f. cost of cleaning services;

g. cost of lift maintenance;

h. electricity and water costs for common areas;

i. insurance costs;

j. property management costs;

k. physical condition of the building;

l. collection rate; and

m. current or future repair needs.

Buildings with many lifts, swimming pools, gymnasiums, security systems, landscaping, multi-storey parking areas and additional facilities usually require higher maintenance costs.

On the other hand, simpler buildings may have lower operational costs.

Therefore, the rate of charges should not be viewed in isolation. It must be considered based on the actual needs of the particular development.

8. Why Can Maintenance Charges Increase?

Maintenance charges may increase for several reasons.

Common reasons include increase in operational costs, increase in security or cleaning costs, increase in utility bills, increase in lift maintenance costs, increase in insurance premiums, building repair needs, financial deficit and low collection rate.

Sometimes, maintenance charges need to be increased because the old rate is no longer sufficient to cover the actual cost of managing the building.

In some cases, a building may face financial difficulties not because the expenses are excessive, but because the charges imposed are too low compared to the actual costs.

When charges are too low, the management body may have to postpone repairs, reduce service levels or use existing funds until the financial position becomes weak.

For this reason, owners should look at any increase objectively. The main question is not simply whether the charges have increased, but whether the increase is reasonable, supported by a budget, properly explained and approved according to the correct procedure.

9. What Happens If Owners Do Not Pay?

If owners do not pay maintenance charges or sinking fund contributions, the management of the building may be affected.

Consequences may include:

a. security companies not being paid;

b. cleaning companies not being paid;

c. lift maintenance being disrupted;

d. building repairs being delayed;

e. utility bills for common areas becoming outstanding;

f. shared facilities not being maintained;

g. the maintenance account going into deficit;

h. difficulty appointing good contractors; and

i. the overall value of the development being affected.

The consequences of arrears are not borne only by the management body. Eventually, all owners and occupants will feel the effect.

If collection is low, the building will lack funds. If funds are insufficient, maintenance will be disrupted. If maintenance is disrupted, quality of life and property value may decline.

For this reason, failure to pay charges is not merely a private issue between an owner and the management body. It is an issue that affects the strata community as a whole.

10. Can the Management Body Take Action for Arrears?

Generally, the management body may take steps allowed by law against owners who fail to pay charges that ought to be paid.

The action to be considered depends on the facts, amount of arrears, supporting documents, notices issued, decisions of the management body and the applicable laws.

Common steps that may be considered include issuing payment reminders, issuing letters of demand, imposing interest or late payment charges if permitted, filing a claim in the appropriate forum, or taking enforcement action allowed by law.

However, the management body must be careful. Any action against an owner in arrears must be taken according to the proper procedure.

Action taken without basis, without proper notice or without complying with the law may create new disputes.

11. Why Is Financial Transparency Important?

Financial transparency is very important when it comes to maintenance charges.

Owners are more likely to understand the need to pay charges if they can see how the money is being used.

The management body must also ensure that accounts, budgets, financial reports, expenses and financial decisions are properly managed.

Transparency does not mean that every owner may interfere with daily operations as they wish. However, owners should have a reasonable understanding of how maintenance funds are used for the benefit of the development.

If the management body fails to properly explain the financial position, owners may lose confidence. If owners lose confidence, collection may become more difficult. When collection becomes difficult, building management becomes weaker.

Therefore, good financial management requires two things: owners who pay charges responsibly and a management body that manages funds transparently and prudently.

12. Conclusion

Maintenance charges and the sinking fund are important foundations in the management of a strata development.

Maintenance charges are used to fund daily operational costs and ordinary maintenance. The sinking fund is used for major expenses, major repairs and long-term needs.

Without sufficient collection, the building cannot be properly managed. The consequences are felt not only by the management body, but also by all owners and occupants.

Owners should understand that maintenance charges are not merely monthly payments. They are part of the shared responsibility in a strata community.

At the same time, the management body must manage funds transparently, prudently and according to proper procedure.

Good strata management requires a balance between payment of charges by owners and responsible fund management by the management body.

Prepared by:
Khairul Shahrizan bin Hamizi
Advocate and Solicitor
High Court of Malaya

Brief Note

This article is prepared for general information only and should not be treated as specific legal advice. Each strata issue must be considered based on its own facts, documents, statements of account, budget, minutes of meetings, demand notices, by-laws and the applicable laws.