A sinking fund (also called a reserve fund or repair fund) is money a building sets aside little by little for big repairs that are sure to come, like repainting the outside, fixing the roof or replacing lift parts. The simple rule is: estimate the big jobs, divide each cost by how many years it lasts, add them up, and collect that amount every month. Then show the balance openly so residents trust it.
Why do buildings need a sinking fund?
Most committees in Karachi, Lahore and Islamabad run on monthly maintenance that is spent as it arrives: guards, cleaning, electricity, small repairs. Nothing is left over. Then the roof leaks in the rains, or the lift needs a major part, and a bill of several lakh rupees lands on the committee. The only option is an emergency collection, and that is where the arguments, the delays and the accusations begin.
A sinking fund turns a surprise into a plan. You pay a small, steady amount, and the money is already there when the job arrives.
What should the fund cover?
Only large, occasional jobs that you can see coming. Examples:
- External painting and plaster repair
- Roof waterproofing
- Water tank, pump and motor replacement
- Major lift parts or modernisation
- Generator overhaul or replacement
- Main gate, boundary wall or intercom replacement
- Electrical wiring or panel upgrades in the common area
Daily and monthly costs stay in the normal maintenance budget. Mixing the two is how a reserve quietly disappears.
How much should a sinking fund be?
There is no single correct figure. It depends on the age of the building, its size and what has already been replaced. Here is a method any committee can follow with a calculator.
- List the big jobs your building will need.
- Get a rough quote for each from a contractor, or use last time's bill.
- Estimate how many years each job lasts before it must be done again.
- Divide cost by years to get a yearly amount.
- Add up all yearly amounts, divide by 12, then divide by the number of units.
Here is an example only, for an imaginary building with 24 flats. These costs are made up to show the method. Use your own quotes.
| Job | Example cost | Lasts (years) | Set aside per year | |---|---|---|---| | External painting | Rs 1,800,000 | 7 | about Rs 257,000 | | Roof waterproofing | Rs 600,000 | 6 | Rs 100,000 | | Pumps and motors | Rs 300,000 | 5 | Rs 60,000 | | Lift major parts | Rs 1,200,000 | 10 | Rs 120,000 | | Generator overhaul | Rs 500,000 | 8 | about Rs 62,500 | | Total | | | about Rs 600,000 |
That is about Rs 50,000 a month for the building, or roughly Rs 2,083 per flat per month. Building owners often get a shock at first. The comparison is a one-time demand of Rs 25,000 or more per flat when the roof gives way in the middle of Ramzan.
What if the building is old and has no fund yet?
Start anyway, and start small. A smaller monthly amount is better than none. Some committees raise the amount in steps over a year. Others fix the most urgent job first, then build the fund. Present the plan at an AGM so the decision belongs to the owners, not only the committee.
Where should the money be kept?
Keep it separate from the daily maintenance account or at least in its own clearly named ledger, so it cannot be spent on routine bills. Check your by-laws for rules on bank accounts, who may sign and how much the committee can spend without approval. Spending should follow the same rule as any other expense: quote, approval, payment, receipt.
How do you show the fund to residents?
Trust is the whole point. A reserve nobody can see looks like a hidden pocket. A monthly note takes ten minutes to prepare:
- Opening balance
- Money collected into the fund this month
- Money spent, with a short reason and the receipt
- Closing balance
- Next planned job and its estimated date
Post it in the building group and on the notice board, and walk through it at the AGM. Our guide on a clean, dispute-free AGM audit report shows a simple layout. The habit of attaching a receipt to every expense is explained in proof-based accounting for committees.
Who should approve spending from the fund?
Never one person alone. A good habit is two approvals: the treasurer and the president, or a vote of a small group. For big jobs, collect two or three quotes and show them to residents before work starts. Record the decision in the minutes.
What about owners who sell or tenants who leave?
The fund belongs to the building, not to one person. Most buildings do not refund it when an owner sells, because the repairs benefit whoever lives there. Whether the contribution can be passed on to tenants depends on your rent agreement, and on your by-laws. Ask a lawyer if there is a dispute.
A quick checklist
- Do we have a list of expected big repairs with estimated costs?
- Is the fund kept apart from daily running money?
- Is the monthly amount written in the AGM minutes?
- Does every withdrawal need two approvals and a receipt?
- Do residents get a short statement every month?
- Do we review the numbers once a year, since prices change?
A sinking fund will not remove every surprise, but it makes most of them manageable. And when people can see it, they usually pay it more willingly.
Nearlify lets a committee record expenses with receipts, get treasurer approval, and share the balance with residents. You can start free at https://nearlify.app/signup.