Breaking Down the Ten Year Maintenance Plan
Category Sectional-title Advice
If you've been following our articles on sectional-titles, you would've come to realise that managing a sectional-title property comes with many rules and responsibilities that need to be fulfilled to ensure its smooth running. For this article, we are switching our focus to the much talked about, ten-year maintenance, repair and replacement plan (MRRP).
The legislation underpinning the plan is PMR 22 of Annexure 1 of the Regulations to the STSMA. It states that the Body Corporate is required to prepare and implement a 10 year MRRP for the common property and the reserve fund must be used for the implementation of the plan. Read more about the reserve fund. The plan allows members to forecast the long-term costs associated with managing and upgrading the property. For accuracy, it is backed by budgeting and financial management.
The Body Corporate, AKA, the owners within a sectional-title, choose trustees (a select group of owners) to set-up and manage the MRRP or alternatively, the help of managing agents can be employed. Regardless of who manages the plan, the body corporate, as a whole, is responsible.
Ultimately, the MRRP is set-up to safeguard and prepare a Body Corporate for significant expenses such as purchasing a new elevator. Typically, a new plan is drawn up every 7-10 years and it requires careful planning to ensure that sufficient funds are generated to undertake costly maintenance projects. It is important to note that operational expenses such as fixing a leaking tap or a defective gate motor are not included in the MRRP - this cost comes out of the administrative fund.
The PMR requires that the MRRP include the following:
1. Major capital items: valuable items that are expected to require maintenance, repair and replacement within the next 10 years;
2. Current state: The current state/condition of repair of major capital items;
3. Time: The estimated time when those items or the items' components will need to be repaired, repaired or replaced;
4. Estimated cost: The estimated cost of the maintenance, repair and replacement of the items' or its components;
5. Life expectancy: The expected life or longevity of those items/components after maintenance, repairs or replacement;
6. Other: Additional information the Body Corporate deems relevant.
In Exceptional Circumstances
By understanding the MRRP and how it works, many may ask what happens in the case where some expenses are quite simply unforeseeable? Well, fortunately, the PMR makes provision for exceptional circumstances that can't possibly be expected or forecast. PMR 24(5)(b) sets out these circumstances and provides that trustees may use funds from the reserve fund for expenses not included in the MRRP. And if the funds are not enough, then a special levy may be implemented.
Formula for Payment
The PMR has implemented a formula to determine the yearly contribution to the reserve fund for the plan. This includes the cost of each of the major capital items.
[(estimated cost minus past contribution) divided by expected life]
The PMR further states that the MRRP only takes effect upon approval by the Body Corporate at a general meeting. Additionally, when approved, the members can specify conditions for the payment of money from the reserve fund. And if required, the plan can be amended, keeping in mind that all contributions and expenditures need to be recorded and accounted for. Another point to note, is, at each Annual General Meeting (AGM), the trustees must provide a detailed report on how the approved MRRP has been implemented.
The ten-year maintenance, repair and replacement plan protects sectional-titles from difficult situations, such as not having sufficient funds to perform imperative maintenance projects. This could lead to further deterioration of the building or may require owners to fork out large amounts of money in a short space of time (special levy). Considering its importance, Bodies Corporate are urged to place emphasis on the MRRP, and if need be, employ the expertise of professional managing agents. De Lucia Group is such a managing agent with a wealth of knowledge and experience who will assist with budgeting requirements and all maintenance aspects of your scheme. Give us a call today.
Author: De Lucia Group