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
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
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
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