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Stop sinking fund collection
The Sun 27/7/2004

WE REFER to the letters titled "Interest on sinking fund hijacked" (theSun Weekend July 17-18), "Hold developers accountable" (theSun July 22) and "Sinking funds may vanish if watchdogs nap" (theSun July 23).

When one buys a unit in a building intended for subdivision, where there are common facilities such as security, social amenities and others, the owner will be required to enter into a Deed of Mutual Covenant (DMC)/House Rules or by any other name.

This is done simultaneously upon the signing of the Sales and Purchase Agreement (SPA). In layman's term, the DMC is an agreement of mutual undertaking between the developer and the purchaser.

The contents vary from developer to developer and are distinctly separate from those in the SPA which terms are regulated by the Housing and Development Act.

The only time the DMC is referred to is when something has gone awry, by which time it is already too late.

One of the clauses in the DMC is the governing of the "sinking fund" and when and how it may be utilised.

Under Section 46 of the Strata Titles Act 1985, the fund is referred to as the "Special Account" which may be utilised and intended to defray against liabilities such as:

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

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

(c) for the renewal or replacement of any fixtures or fittings comprised in any common property and any movable property vested in the body corporate; and

(d) for any other expenditure not being expenditure incurred to meet a liability for maintenance or for settling any defaults in payment by a proprietor.

We are of the view that the collection of "sinking fund" should be prohibited as the developer is required by law to apply for strata title within six months from the date of issuance of the Certificate of Fitness.

This will prompt developers to expeditiously apply for strata titles rather than hold on to the management. Thus, the sinking fund would not be necessary since the requirement for painting or replacement does not arise as the materials used are supposed to be good.

Why should a buyer pay RM3,000, or any sum whatsoever, on taking vacant possession?

The issue of collecting a "sinking fund" is only necessary after the strata title is available and the Strata Titles Act comes into play.

We are of the view that the interest earned on the fixed account should belong to the management who inherited the workings of the apartment.

There is no provision in the Act allowing the developer to retain the interest accrued or any unapproved expenditures.

Chang Kim Loong
National House Buyers Association

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