Strata Management

Part 5: The Use of Funds In The Maintenance And Sinking Fund Account Is Strictly Provided For Under The Strata Management Act 2013

Using The Maintenance And Sinking Funds

JMBs and MCs: use of maintainence and sinking funds | Property & conveyancing law

Throughout the years of chairing Joint Management Bodies (JMBs) and Management Corporations (MCs), a similar question keeps popping up as to whether we can utilise the funds from the Maintenance Account to carry out certain activities.

These activities include to have a simple appreciation dinner with the JMC/MC members, to install wifi at the common area, to purchase equipment for the gymnasium, setting up signboards (especially in a mixed project) etc.

Although these activities share a common objective in bringing benefits to the community, they will however face a lot of resistance mainly because of the restrictive provisions provided in the Strata Management Act (SMA). Often than not, before we can spend a single Ringgit from the Maintenance Account to carry out the activities above, full blown arguments will be made in the meeting essentially trying to construe the law and guessing what is the intention of the legislators.

To illustrate the complexities, let me firstly give you the law in brief. There are 3 different provisions in the SMA which provides the use of the maintenance account which are Section 10, 23 and 50 and which largely bear similar grounds.

(i) maintaining the common property;

(ii) paying for the expenses incurred for cleaning, security and amenities;

(iii) paying any premiums for the insurance;

(iv) complying with any notice or order given;

(v) minor painting work on the common property;

(vi) carrying out inspection of all electrical wiring systems of the common property;

(vii) carrying out inspection, maintenance and repair of the main water tanks;

(viii) paying rent and rates;

(ix) paying any fee incurred for the auditing of the accounts;

(x) paying all charges reasonably incurred for the administration of the accounts;

(xi) paying the remuneration or fees for the managing agent;

(xii) paying for the allowances and other expenses of the members of the joint management body and members of the joint management committee

(xiii) meeting other expenses of a general or regular nature relating to the maintenance and management of the building or land intended for subdivision into parcels and the common property; or

(xiii) paying any expenses, costs or expenditure in relation to the procurement of services, including the engagement of consultants, legal fees or costs and other fees and costs.

Strictly relying on those sections, any monies spent outside the scope will be deemed illegal. So, having the provisions set out above, what is your take to the activities above?

I think by now, you will still be equally puzzled because it remains unclear to assist you and there is still this doubt lingering over whether you could spend money from the maintenance account to purchase gym equipment, or even to install wifi in your neighbourhood.

SO, WHAT DO YOU DO NEXT?

Do you just call it off? Because if you do, chances are that the proprietors will complain that they have paid so much of the maintenance charges and sinking fund, yet they don’t enjoy basic amenities like internet connection. On the other hand, if you proceed, you may have to be made liable for the expenses spent which the proprietors have a right to recover from you.

I equally share the pains of these nagging questions, and when I was approached for advice I usually get my clients adopt few simple steps below:

Use of Maintenance and Sinking Funds -Provisions
Information provided by Chee Hoe & Associates

If you could not fit into any of the limbs no matter how liberal you try to interpret the SMA, you should put a stop to it. If you insist, you may be made liable to reinstate monies spent and if your actions have caused the transactions not explained sufficiently in the accounts being a true and fair  balance sheet, income and expenditure statement and profit and loss statement, you may commit an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

*THE SINKING FUNDS PROVISION:

As listed below:

The sinking fund account shall be used solely for the purposes of meeting the actual or expected capital expenditure in respect of the following matters:

(a) the painting or repainting of any part of the common property;

(b) the acquisition of any movable property for use in relation to the common property;

(c) the renewal or replacement of any fixture or fitting comprised in any common property;

(d) the upgrading and refurbishment of the common property; or

(e) any other capital expenditure as the joint management body deems necessary.

Lastly, another creative way is to set aside the funds generated from the common area (non-contribution of proprietors) although it also shares certain amount of risks.  A good example would be licensing fees collected from the alfresco area or common areas for installation of  signboards. These funds can then be technically used for purposes not covered within the scope of SMA to set up advertisement billboards, directory signages, touch on screens and even wifi centres for the benefit of proprietors.

This article is part of a series: Part 1 | Part 2Part 3 | Part 4 | Part 5 | Part 6 | Part 7 | Part 8

Lai Chee Hoe
Partner at Chee Hoe & Associates. With 10+ years of experience under his belt, he specializes in civil and corporate litigation. He is also the current Chairperson of various Joint Management Bodies.

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