No Sinking Fund

[japanese]

I am looking around for a condo and found one I liked.

 

But apparently there is no sinking fund.  And the condo is still managed by the developer after around 12 years of it being built.

 

I am new to this, but something smells off. So people with knowledge and experience out there - what is likely going on?

 

[WhiteBuffaloATM]

The “reserve sinking fund” is intended to cover major Capital repairs and upgrades, like Building Repainting, New Structures, New Water/ Pool Pumps. 

 

The “ common expenses fund” is for regular MRO (Maintenance Repair Operations) for Common Area / Facility Consumable bills like Electric, Water, Gardens, Walls, Cleaning, Security, Caretaker, Minor Painting, Weather Damage, Water Pump Servicing, Pool Servicing.

 

There MUST be a Common Fund under Thai Management Co. and FULL Property Owner Control.

Majority ( available) Owner Votes determine Scope, Price, Contractor for all Works,Services & Goods.

Separate Sinking Fund is not necessary as it can be successfully combined with Common Fund, especially after many years operation where Owner Quarterly Payments can be calculated & set to cover total expected spend + % contingency. As done for the my nine Pool Villa Complex, where we  now underspend and have had sufficient funds for New Pumps, New Pool Roof, New Walls, Cameras.

without recourse to sinking fund.

 

Check : Complex Common Repair Condition, Owner CF Payments Outstanding, Resident Caretaker, Common Fund Balance & Expenditure , Common Fund Operation / Controller.

 

[soi3eddie]

WhiteBuffaloATM has it pretty well covered. Also ask to see the the audited accounts for the building (Common Juristic Person). Ask too about the owners' board and who is on it to represent the co-owners. I suspect that the developer couldn't offload all the units and are renting them out rather than sold. Chok dee! and let us know how you get on please.

 

[DrDave]

I would try to do a little investigation into the ownership and voting rights of the individual units. A developer who is acting as the juristic person (manager) may be holding title to the majority of units, using them as rentals. If this is the case, then the other owners are obviously in the minority and technically have no say in the management of their condo.

[scubascuba3]

When buying a new condo money is paid to a sinking fund, if there isn't one then maybe the developer has spaffed it up a wall.

 

Check the annual accounts\AGM minutes, balance sheet will show the cash balances. Look for discussions on common fees, supplementary fees and anything else controversial

Edited September 16, 2021 by scubascuba3

[LarrySR]

That condo should have a co-owners board of directors.

The problem is, many don't want to get involved and often, those with ulterior motives can get control the the property. (and the accounts)

[japanese]

Thank you for these pointers.

 

I have had someone tell me that the sinking fund is a legal obligation, and the land office can actually step in, take control of a project and owners can lose possession of the condos!  

 

That seems unlikely to me, but what do I know?  Is this person talking out of the wrong end of their body?

[smutcakes]

2 hours ago, japanese said:

Thank you for these pointers.

 

I have had someone tell me that the sinking fund is a legal obligation, and the land office can actually step in, take control of a project and owners can lose possession of the condos!  

 

That seems unlikely to me, but what do I know?  Is this person talking out of the wrong end of their body?

Not in any practical way they cannot, so i would completely eradicate that from your thinking unless you have 100 years, millions of dollars to waste on lawyers fees and want to stress your life away for nothing for the next 50 years.  The land office have zero jurisdiction to step into any Condo office and take ownership of anything.... Any reclamation would need a party to claim wrong doing and challenge that in the courts for God knows how many years... the land office are not a judge/jury.

 

The sinking fund is necessary now, but 14 years ago was just about when the new Condo Act was established so its possible the condo fell under the old regulations when registered.

 

In 15 years of business related to Condominium Management, i have not seen one unit ever reclaimed and sold off for unpaid debts by the Juristic Person, despite many know it all's claiming its possible. I have seen units repossessed by banks but never a juristic person.

[Delight]

Your current fees cannot be raised -unless the current JPM knows a work around .

One option:

 You just need 20% of the co -owners (by voting allocation) to demand a EGM. The agenda and the minutes must be in Thai language. Typically also in English for convenience.

 

25% of the total votes (that's attendance and proxies) is required to replace the Condominium Juristic Manager)JPM)-at this EGM.

 

Of course you will require  a suitable replacement JPM and no doubt you will need to hire a management company -to run the place.

So the fees will probably need to go up.

 

Right now I suspect that you do not have a co -owners bank account.

 

This is possible if the fore mentioned procedure is followed.

However in general terms the co -owners will need to pay out more.

 

 

[japanese]

8 hours ago, smutcakes said:

The sinking fund is necessary now, but 14 years ago was just about when the new Condo Act was established so its possible the condo fell under the old regulations when registered.

Built 2009 apparently so should fall under the Condo Act presumably.  But perhaps I am assuming completion is the applicable date for the Condo Act rather than groundbreaking or even planning application?

[WhiteBuffaloATM]

Just Forget Laws here please ! They are not for farang protection. Too much focus on the CF !

Simply take the practical audit measures suggested here for the Common Fund.

 

My very positive CF experience has been with total nine western Controlling Owners, decisions taken by verbal / email majority, work scoped & executed by largest Owner Resident Rep. (3/9 units), with input from other Resident Owners. CF cheques signed by that Rep and Thai Land Owner who runs the Limited Mng. Co. accounting- wise.

Leasehold Owner Freehold Option taken by three Owners. No affect on CF.

Larger Complexes can have 40-50 + Owners so MOM etc. so more unwieldy for one -off voted Works.

 

Stop Overthinking, Worrying and Stressing mate  !

“Believe” it will all work out, protect yourself at all times & live your life here !  

Decide to Buy or Not, all things considered, not just CF status……although that is KEY.

Heard Many Pattaya Condos literally falling apart due to insufficient funds / interest …….or crooked accountants running off with the dough……yeah it happens…….

 

Once the useful comments have dried up ( possibly now), consider requesting Moderator / Admin to Close OP, (before the usual idiot trolls start biting & distracting)…….

 

[lkn]

On 9/16/2021 at 6:45 PM, japanese said:

I am new to this, but something smells off. So people with knowledge and experience out there - what is likely going on?

Difficult to say if anything is going on. The developer could be doing a great job at managing the building with the consent of the co-owners. I once rented in a building that was managed by the developer, and it was definitely among the better run buildings I have stayed in, and the developer did call for AGMs etc.

 

For lack of sinking fund: I might be wrong, but I don’t think that is actually a requirement. Regardless, you should look at the balance sheet, e.g. the building could have a sinking fund of 100,000 baht and no retained earnings (not good), or it could have a sinking fund of 10 baht but retained earnings of 5 million baht (much better), and yearly profit of 100,000 baht going into retained earnings, except every 5th year or so, when 800,000 baht is spent painting the building.

 

So we can’t really say anything about the building with the details you have provided.

 

What is important is how well it is maintained, as the building is more than ten years old, you should be able to tell by now, if it is badly maintained. The other important thing is whether or not AGMs are called, and if these are “democratic”, and lastly the financials.

 

Requesting meeting minutes and financial reports for the last few years, should give you a good idea about the latter two things.

 

[kennw]

On 9/17/2021 at 1:25 AM, DrDave said:

I would try to do a little investigation into the ownership and voting rights of the individual units. A developer who is acting as the juristic person (manager) may be holding title to the majority of units, using them as rentals. If this is the case, then the other owners are obviously in the minority and technically have no say in the management of their condo.

In the situation you describe the developer would have the majority of votes and thus control.

[SheungWan]

Walking around a 12 year old building should give you plenty of  indications of whether the place is managed adequately. 

[newnative]

10 hours ago, SheungWan said:

Walking around a 12 year old building should give you plenty of  indications of whether the place is managed adequately. 

     I agree.  You might not be able to see internal things like elevator cables but you can observe how fresh the paint is on the building, the condition of the gym and its equipment, pool maintenance and water cleanliness, lobby and elevator car condition, grounds, staff, etc.   A condo being managed by the developer is not automatically a bad thing.  My partner and I have owned condos that were developer-managed and they were well-run and maintained. 

    Lack of a sinking fund is also not necessarily a deal-breaker.  Our current condo is about 15 years old and has kept the condo maintenance fee steady over the years.  It handles any budget over-runs with a yearly special assessment that covers out-of-the-ordinary expenses--this year the pool was re-tiled and the pool decking was replaced, for example.  This year's special assessment, based on a unit's sqm, was around 10,000 baht for our unit--we are happy to pay it as the project is being maintained very well.  If you can find out the owner delinquency rate of condo maintenance payments that would be helpful--especially in this difficult period with covid.

[scubascuba3]

1 hour ago, newnative said:

     I agree.  You might not be able to see internal things like elevator cables but you can observe how fresh the paint is on the building, the condition of the gym and its equipment, pool maintenance and water cleanliness, lobby and elevator car condition, grounds, staff, etc.   A condo being managed by the developer is not automatically a bad thing.  My partner and I have owned condos that were developer-managed and they were well-run and maintained. 

    Lack of a sinking fund is also not necessarily a deal-breaker.  Our current condo is about 15 years old and has kept the condo maintenance fee steady over the years.  It handles any budget over-runs with a yearly special assessment that covers out-of-the-ordinary expenses--this year the pool was re-tiled and the pool decking was replaced, for example.  This year's special assessment, based on a unit's sqm, was around 10,000 baht for our unit--we are happy to pay it as the project is being maintained very well.  If you can find out the owner delinquency rate of condo maintenance payments that would be helpful--especially in this difficult period with covid.

another good reason to walk around a condo is to see how many if any have built onto the balcony by adding windows, really ruins the look, best to avoid those places

[Pravda]

From my experience a condo managed by developer is usually a good thing. 

 

Sena developer manages some of their better condo buildings and they are in much better state than the ones where Thai grubby hands got hold of your maintenance fee cash.

[newnative]

13 minutes ago, scubascuba3 said:

another good reason to walk around a condo is to see how many if any have built onto the balcony by adding windows, really ruins the look, best to avoid those places

I agree.  And, that can be a sign of weak management.  

[sjd123]

Getting hold of the last 3 years accounts will help.Not having any sinking fund could signal a future rise in the maintainance fee.Accounts will show cash at hand ,outstanding owner fees and will give you an idea whats getting spent where.Having 3 years gives an idea if things are heading in the right or wrong direction.

[Henryford]

Run Forrest run

[digbeth]

Is the condo leasehold though? although rare, non-freehold condos do exist in Bangkok, in some nice address that's CPB owned, if you're technically just renting for 30+years, wouldn't the sinking funds and maintenance be the responsibility of the developer in that case?

[smutcakes]

23 hours ago, digbeth said:

Is the condo leasehold though? although rare, non-freehold condos do exist in Bangkok, in some nice address that's CPB owned, if you're technically just renting for 30+years, wouldn't the sinking funds and maintenance be the responsibility of the developer in that case?

Slightly off track, but this is one of my real bugbares. Developers call them leasehold condominiums, but its complete nonsense. Condo's by their definition are freehold, so they cannot be a condominium if they are leasehold. Its a marketing con. You will notice that not once ever in the Purchase contract/Long lease Agreement- it does not once mention the word 'Condominium'.

[LongTimeLurker]

On 9/17/2021 at 1:11 PM, smutcakes said:

In 15 years of business related to Condominium Management, i have not seen one unit ever reclaimed and sold off for unpaid debts by the Juristic Person, despite many know it all's claiming its possible. I have seen units repossessed by banks but never a juristic person

It's happened at my condo building, but the JP had to go to court to do it,so full legal recourse is available.

 

And they have another case pending which is expected to be won also.

[LongTimeLurker]

On 9/17/2021 at 3:06 PM, Delight said:

You just need 20% of the co -owners (by voting allocation) to demand a EGM. The agenda and the minutes must be in Thai language. Typically also in English for convenience.

 

25% of the total votes (that's attendance and proxies) is required to replace the Condominium Juristic Manager)JPM)-at this EGM.

Isn't it that once over 50% of the units are sold the co-owners (i.e. non-developer owners) can take over the management of the Condo?

[lkn]

5 hours ago, LongTimeLurker said:

Isn't it that once over 50% of the units are sold the co-owners (i.e. non-developer owners) can take over the management of the Condo?

You need majority of attending votes at the AGM to vote for your budget and other proposals, but at the AGM, a committee is elected (every 2nd year), the developer can only get one person elected into this committee (and only be in the committee for at most two consecutive terms), the rest will be co-owners, and it is the committee which will oversee management.

 

So in theory, the day after the AGM, the new committee could fire the existing management team/company and hire a new one, as long as they stay within the passed budget, and as long as the AGM has not explicitly voted for a specific management company to run the building (which they normally wouldn’t do).

[smutcakes]

13 hours ago, lkn said:

You need majority of attending votes at the AGM to vote for your budget and other proposals, but at the AGM, a committee is elected (every 2nd year), the developer can only get one person elected into this committee (and only be in the committee for at most two consecutive terms), the rest will be co-owners, and it is the committee which will oversee management.

 

So in theory, the day after the AGM, the new committee could fire the existing management team/company and hire a new one, as long as they stay within the passed budget, and as long as the AGM has not explicitly voted for a specific management company to run the building (which they normally wouldn’t do).

In theory yes developers can only have one representative who is the authorized person for their unit holdings. In practice it is very easy for them to put single other units under other company names with other authorized persons for those units to also be elected onto the Committee.

[lkn]

3 hours ago, smutcakes said:

In theory yes developers can only have one representative who is the authorized person for their unit holdings. In practice it is very easy for them to put single other units under other company names with other authorized persons for those units to also be elected onto the Committee.

They would have to pay transfer fee and stamp duty, right? So it is not without cost, and the condo act allows up to 9 people in the committee, so they would have to transfer 4 units to ensure a majority, plus another 9 units, if they want to stay in power beyond the two consecutive terms allowed.

 

I don’t know if something like this has actually happened, but to me it doesn’t seem rational for a developer to spend money on basically being in opposition with co-owners of a building where they still have units they want to sell.

 

[smutcakes]

5 hours ago, lkn said:

They would have to pay transfer fee and stamp duty, right? So it is not without cost, and the condo act allows up to 9 people in the committee, so they would have to transfer 4 units to ensure a majority, plus another 9 units, if they want to stay in power beyond the two consecutive terms allowed.

 

I don’t know if something like this has actually happened, but to me it doesn’t seem rational for a developer to spend money on basically being in opposition with co-owners of a building where they still have units they want to sell.

 

Of course it happens. The transfer fee would be chicken feed even on the most expensive units. Also staff of developers often buy units at discount so they can be counted on.

 

Most developers genuinely have the best interest of the condos at heart given they have significant interest in maintaining the value of their remaining units. I presume for most good developments they hope they are sold out within 2 years so holding people on the Committee for 2 years + is hopefully superflous. Obviosuly their are <deleted>ty developers who game the system but for the most part developers want the best for the condo. 

 

They would not even need 9 as they could vote for a 3-5 person Committee.

[lkn]

10 minutes ago, smutcakes said:

They would not even need 9 as they could vote for a 3-5 person Committee.

My understanding is that anyone who wants to join the committee will be accepted *unless* there are more than 9 candidates, in that case, a vote will have to be held, to find out which 9 of the candidates will be elected.

 

That said, I have heard (second hand) about a condominium which changed their bylaws to allow a smaller amount in the committee, which initially did give them a few problems with the Land Office, but was eventually accepted.

[smutcakes]

8 hours ago, lkn said:

My understanding is that anyone who wants to join the committee will be accepted *unless* there are more than 9 candidates, in that case, a vote will have to be held, to find out which 9 of the candidates will be elected.

 

That said, I have heard (second hand) about a condominium which changed their bylaws to allow a smaller amount in the committee, which initially did give them a few problems with the Land Office, but was eventually accepted.

I have seen many condominiums in fact most i have been involved in have to agendas on the Committee, 1st to vote number of members and then to vote which members. Its completely logical as have 5 active members is far better than having a 9 person committee which would have difficulry meetinf quarom and just be unwieldly to organize at times.

 

Of course those members still need to get simple majority of approval of the meeting to join as per the condo act. So no they cannot just join they still need to be voted on.