It’s a sad fact of life that all buildings age, with parts eventually wearing out and needing replacement, repairing, or refurbishing. Expenses for building maintenance are inevitable which, makes it important for building owners to plan ahead and regularly set aside enough funds to cover these costs. This requirement is so important that the Dubai Real Estate Regulatory Authority (RERA) has stepped in and made it compulsory for all jointly owned property to have a reserve fund dedicated to future capital expenses related to the building.
The sinking fund is used to fund future maintenance and repair of the building such as painting, road refurbishment, repair and replacement of common items such as lifts, sprinkler systems, flooring, mechanical plants, and external cladding. The sinking fund not only helps maintain and add value to the property, but it also means you are in compliance with your legal obligations as laid out by RERA and Dubai law.
It’s not just about opening a shared account and throwing money at it as the whole process is quite in depth to make sure the right level of funding is always being set aside. The actual process has been given the official moniker of Sinking or Reserve Fund Study. This is essentially a tool which property owners can use to keep tabs on the current status of the fund. It also allows them to fine tune the contributions to ensure the fund remains stable and equitable in the event of necessary repairs or replacements.
Firstly, an interview is arranged between a client or a qualified representative who has sufficient knowledge about the property, it’s history, and where everything is located. All relevant information about the property and its assets are gathered and assessed. Following the interview is a physical walk-through of the property. Pictures are taken of all relevant areas of the building and notable characteristics such as elevators, the surrounding area, and building systems.
Once all pertinent information has been gathered, the property inspector will then check the condition of all building systems and that they are in compliance with local regulations. If any systems need it they will then recommend repair, renovation, or replacement.
Once the inspection is complete a Property Inspection Report will be compiled which outlines the condition of the building and its components. An Immediate Repairs Table will highlight all repairs which should be completed immediately and a Replacement Reserve Table will associate estimated costs against future replacements or servicing. Using this information will enable the owners to understand the condition of the building, their financial commitment, and how their finances will be affected by the building’s future performance.