What Is a Sinking Fund, and Why Is It Essential for Condominiums When Funds Run Low?

What Is a Sinking Fund, and Why Is It Essential for Condominiums When Funds Run Low?

A condo's sinking fund running low is a concern for many residents, because the sinking fund is a crucial pool of money for the long-term upkeep of the building — things like elevator maintenance, repainting, or upgrading utility systems. When this fund runs low, it naturally raises the question of who will be responsible for the costs, and residents may end up having to pay extra fees unexpectedly.

This article will help you understand what a condominium juristic person's sinking fund is, how it differs from common area fees, and why a reserve fund matters so much to everyone living in the building — along with the steps residents and the juristic person should take to manage the sinking fund so it remains sufficient and sustainable.

What Is a Sinking Fund, and How Is It Different From Common Area Fees?

A sinking fund is a reserve fund that every co-owner in a condominium project must pay to the condominium juristic person, to be set aside for major repairs or costly common area improvements that cannot be covered by regular common area fees. For example

The reserve fund differs from common area fees in that common area fees are paid on a recurring basis to cover the day-to-day upkeep and management of common areas, while the reserve fund is paid only once, when a unit is first purchased. This money is not refunded when the unit is sold, because it is a pooled fund — new buyers do not need to pay it again if the previous owner has already paid it.

Why Do Condominiums Need a Sinking Fund While Many Housing Estates Don't?

Many people wonder why condominiums routinely collect a sinking fund, while housing estates rarely mention a similar kind of fund. The main reason lies in the different legal requirements that apply to these two types of property.

For condominiums, the law requires a sinking fund. Under Section 40 of the Condominium Act B.E. 2522 (1979), co-owners are required to pay into the sinking fund at the start of a project, to serve as a reserve for the long-term repair and maintenance of common areas. As a result, every condominium project must establish a sinking fund from the outset, managed under the condominium juristic person.

Housing estates, on the other hand, are not legally required to maintain a sinking fund the way condominiums are. They typically collect only monthly common area fees to cover roads, electrical systems, or shared facilities. That said, a housing estate can choose to establish a sinking fund if residents and the housing estate juristic person agree to do so at a general meeting. This approach can help build financial stability for major repairs, similar to a condominium, but it depends on the voluntary agreement of each project's residents.

How Much Do You Need to Pay Into the Sinking Fund, and How Is It Calculated?

The sinking fund is generally calculated either as a percentage of the sale price or as a fixed amount per square meter, with the typical rate ranging from 500-800 baht per square meter, though this can vary from project to project.

For example, if a unit is 50 square meters and the sinking fund rate is 600 baht per square meter, the amount payable is

50 × 600 = 30,000 baht

There is also a general guideline stating that the total sinking fund for a project should be at least 10 times the monthly common area expenses. For instance, if a project's common area fees total 2 million baht per month, the minimum reserve fund should be 20 million baht, to prepare for major repairs in the future.

The collected sinking fund is managed by the condominium juristic person, kept in a bank account separate from common area fees. Some projects may also deposit or invest the funds to generate returns, which can then be used to further support the building's liquidity as appropriate.

Why the Condominium Juristic Person's Sinking Fund Matters So Much to a Condo

The sinking fund is extremely important to a condominium, as it functions like a long-term emergency fund for the building. Its importance can be summarized as follows.

Condominiums have a service life. Over time, key equipment and structural components — such as elevators, water pumps, fire suppression systems, or even the building itself — will need repair or replacement, which requires a substantial amount of money.

Having an adequate sinking fund helps keep the condominium in good condition and pleasant to live in at all times. This not only improves residents' quality of life but also helps preserve the unit's value from declining over time.

Having a condominium juristic person's sinking fund is a guarantee that the project's utility systems — such as electrical and water systems, or security equipment like License Plate Recognition (LPR) cameras — will always be maintained to standard. This gives residents confidence and a sense of security over the long term.

The sinking fund is a symbol of transparent management and long-term planning. When a juristic person collects and uses the sinking fund appropriately, it reflects that the project genuinely cares about residents' quality of life, rather than simply reacting to problems as they arise.

In short, the sinking fund serves both as a reserve and as a guarantee of a condominium's stability — in terms of value, safety, and residents' quality of life. If it is neglected or fully depleted, the consequences can be more severe than many people expect. Next, let's look at what can be done when the sinking fund actually runs out.

What to Do If the Sinking Fund Runs Out or Is Running Low

When the sinking fund runs out or drops too low to cover major expenses, it's essential to find a solution that is transparent and systematic, so the problem doesn't escalate into a safety or property-value issue for the condominium. The main approaches are as follows.

Residents can ask the condominium juristic person to disclose its financial reports, to see what the sinking fund has been spent on and how much remains. Transparent disclosure helps build understanding and cooperation among residents.

Under condominium law, any additional use or collection of funds must go through a general meeting of residents. Having a forum for discussion helps everyone understand the reasoning and make decisions together — for example, whether to collect a special fee, raise the common area fee rate for co-owners, or draw up a long-term maintenance plan.

In some cases, the juristic person may need to collect an additional sinking fund contribution from every unit, or a one-time special fee, to resolve the issue. While this isn't something residents want to face, it is a way to ensure there is enough budget for major repairs.

Sometimes the juristic person may tighten its spending plan — for example, cutting unnecessary expenses, taking certain elevators out of service during low-traffic periods, reducing some temporary staff, or applying water and electricity conservation measures. This approach helps slow the depletion of the sinking fund and improve short-term financial liquidity.

Once the problem has been addressed, it's important to put a new system in place — such as collecting additional sinking fund contributions at a reasonable rate, using condominium juristic person accounting software to keep finances transparent, and forecasting major repair costs in advance — to prevent the sinking fund from running out again in the future.

While a sinking fund running low is a serious matter, it can be managed without affecting residents' quality of life or safety if handled with transparency, a joint effort to reduce costs, and long-term planning.

From a Financial Burden to an Investment in Residents' Future

By now, you should understand that a condominium's sinking fund is a vital tool for ensuring stable and secure living. With sufficient planning and savings, a building can carry out major repairs on time, without residents having to shoulder a sudden, large expense, while also helping preserve the property's value and keep it a pleasant place to live.

The real challenge is managing the sinking fund in a way that is transparent and verifiable — and this is where technology comes in. That's why Silverman's condominium management software helps juristic persons manage their sinking fund systematically, from tracking balances and planning budgets to communicating clearly with residents.

When both the juristic person and residents have access to verifiable information at all times, confidence in condo living grows. The sinking fund is therefore not just an expense to be paid, but an investment in the safety and future of everyone in the project.