What is a Sinking Fund and Why is it Important for Condominiums When the Money Runs Out

The issue of condominium sinking funds running low is a major concern for many residents. The sinking fund is a vital reserve for long-term building maintenance, such as elevator repairs, repainting, or upgrading public utilities. When this fund is nearly depleted, it raises questions about who will be responsible for the expenses, and residents may face unexpected additional charges.

This article will explain what a condominium sinking fund is, how it differs from common fees, why it is essential for everyone’s quality of living, and the measures both residents and juristic persons should take to ensure sustainable and sufficient fund management.

What is a Sinking Fund and how does it differ from common fees?

A sinking fund is a reserve fund that every unit owner in a condominium or apartment project must contribute to the juristic person. It is set aside for major repairs or costly improvements to shared facilities that cannot be covered by regular common fees, such as:

• Repairing building structures, such as cracks or repainting the entire building
• Replacing old elevators, plumbing systems, electrical systems, or other core utilities
• Emergency repairs, such as major water leaks, fires, or floods

The sinking fund differs from common fees in that common fees are collected regularly to manage daily maintenance of common areas. In contrast, the sinking fund is a one-time payment made when purchasing a new unit. It is non-refundable upon selling the unit, as the contribution remains with the building and does not need to be paid again by the new owner if the previous owner already contributed.

Why do condominiums require sinking funds while many housing estates do not?

Many people may wonder why sinking funds are standard for condominiums but rarely mentioned in housing estates. The key reason lies in the different legal requirements between these two types of real estate.

• Condominium case

For condominiums, the Condominium Act B.E. 2522 (1979), Section 40, requires co-owners to pay a sinking fund at the start of the project. This fund serves as a reserve for long-term maintenance and repair of shared facilities. Therefore, every condominium project must establish a sinking fund from the beginning, managed under the condominium juristic person.

• Housing estate case

In contrast, housing estates are not legally required to establish a sinking fund. Typically, they only collect monthly common fees for road maintenance, electricity systems, or shared amenities. However, a housing estate may establish a sinking fund if residents and the juristic body agree in a general meeting. This helps ensure financial stability for major repairs, similar to condominiums, but it depends on residents’ voluntary agreement.

How much do residents need to pay into the sinking fund and how is it calculated?

Generally, the amount is calculated as a percentage of the selling price or as a fixed amount per square meter. The typical rate ranges from 500–800 THB per square meter, but it varies depending on the project.

For example, if a unit is 50 sq.m. and the sinking fund rate is 600 THB per sq.m., the amount payable is:

There is also a guideline that the total sinking fund for the entire project should be at least 10 times the monthly common fee. For instance, if the project’s monthly common fees total 2 million THB, the minimum sinking fund should be 20 million THB to support future major maintenance.

The sinking fund collected is managed by the condominium juristic person and kept in a separate bank account from common fees. In some projects, it may be deposited or invested to generate interest, which can help improve the building’s financial liquidity.

Why are sinking funds so important for condominiums?

The sinking fund is critically important as it serves as an emergency savings account for long-term building needs. Its importance can be summarized as follows:

Condominiums have a limited lifespan. Over time, core systems and structures such as elevators, water pumps, fire systems, and even the building itself will require repair or replacement, which involves significant expenses.

A sufficient sinking fund ensures the condominium remains in good condition, enhancing residents’ quality of life while maintaining property values over time.

A condominium sinking fund guarantees that essential systems—such as electrical, plumbing, and safety equipment like LPR (License Plate Recognition) cameras are properly maintained. This provides residents with long-term safety and peace of mind.

The sinking fund symbolizes transparent management and long-term planning. Proper collection and use of the fund reflect the project’s commitment to residents’ well-being, beyond just addressing short-term problems.

In summary, the sinking fund is both a financial reserve and a safeguard for the condominium’s value, safety, and residents’ quality of life. If mismanaged or depleted, the consequences can be more severe than expected. The next section explores what can be done if the sinking fund actually runs out.

What to do if the sinking fund runs out or is nearly depleted

When the sinking fund is exhausted or insufficient to cover major expenses, it is crucial to resolve the issue transparently and systematically to prevent risks to both safety and property value. Key approaches include:

Residents can request the juristic person to disclose financial reports showing how the sinking fund has been used and how much remains. Transparency helps build understanding and cooperation among residents.

Under condominium law, any use of additional funds or collection of extra charges must be approved in a general meeting. Providing a discussion platform ensures all parties understand the reasons and make collective decisions, such as whether to collect special fees, increase common fees, or create a long-term repair plan.

In some cases, the juristic person may need to collect extra contributions from all unit owners or levy a one-time special fee. Although unpopular, this ensures adequate funds for necessary major repairs.

The juristic person may adjust spending plans, such as cutting non-essential costs, suspending some elevators during low-usage hours, reducing temporary staff, or implementing energy-saving measures. These strategies help conserve the sinking fund and improve short-term financial liquidity.

After encountering problems, it is essential to establish new systems, such as increasing sinking fund contributions at reasonable rates, adopting condominium accounting software for transparency, and forecasting major repair costs to prevent future fund depletion.

Although a depleted sinking fund is a serious issue, with transparent auditing, cost-cutting, and long-term planning, it can be managed without compromising residents’ quality of life and safety.

From financial burden to future investment for residents

By now, it should be clear that the sinking fund is a crucial safeguard for stable and safe living. With proper planning and accumulation, buildings can cover major repairs on time without burdening residents with sudden large payments, while also preserving property values.

The challenge lies in ensuring transparency and accountability in managing the sinking fund—an area where technology plays a key role. Silverman’s condominium management software helps juristic persons manage sinking funds systematically, including financial monitoring, budgeting, and clear communication with residents.

When juristic persons and residents have access to transparent financial information, confidence in condominium living increases. The sinking fund then becomes not just an expense but an investment in the safety and future of everyone in the project.