Capital works fund 101: what it should cover, and what underfunding it costs

A capital works fund is not a discretionary nice-to-have. Under NSW law, every owners corporation must have one, and must plan ten years ahead for what it will be spent on. The committees that get the most out of this requirement treat it as a planning tool rather than paperwork, and it is one of the clearest levers a committee has over a building's long-term cost and condition.

This is general information for committees. For decisions about your specific scheme's levies, plan or fund balance, get advice from your strata manager and, where needed, a strata lawyer.

What the fund is for

Under the Strata Schemes Management Act 2015, an owners corporation must establish both an administrative fund (section 73) and a capital works fund (section 74). The split matters:

• The administrative fund pays for day-to-day running costs — cleaning, gardening, insurance, utilities, minor repairs.
• The capital works fund pays for major, non-recurring items — roof and membrane replacement, lift overhaul, façade and balcony remediation, repainting cycles, structural repairs.

Section 76 restricts moving money between the two funds without the owners corporation formally deciding to do so and then levying to put it back within three months. In practice, that means a committee cannot quietly use capital works money to cover an admin shortfall, or vice versa, without a decision and a plan to repay it.

The 10-year plan is a legal requirement, not a best-practice suggestion

Under section 80, every owners corporation must prepare a plan of anticipated major expenditure from the capital works fund for the next ten years, covering the likely work, its timing, its estimated cost and how it will be funded. The plan must be finalised by the following AGM and, as far as practicable, the owners corporation has to actually implement it — not just file it away. Levies are then set to build the fund toward what the plan says will be needed.

Why underfunding it costs more, not less

Keeping contributions low feels like a win at AGM time. It rarely is, for three reasons:

• Deferred work gets more expensive, not cheaper. A façade or balcony waterproofing system that could have been resealed for a modest sum becomes a full membrane replacement once it has been failing for several years — the pattern we cover in our facade and balcony waterproofing post.
• An underfunded plan forces a special levy. When the money isn't there when the work becomes unavoidable, owners face one large, unplanned levy instead of several years of modest, planned contributions — the exact outcome the 10-year plan exists to prevent.
• It affects resale and finance. Buyers' solicitors and conveyancers routinely review the capital works fund balance and the 10-year plan as part of due diligence. A fund that looks underfunded against known upcoming work is a red flag that can affect a sale, and in some cases a buyer's ability to get finance.

What good practice looks like

• Align the plan with an actual building condition assessment, not just a rough estimate — engage someone who can inspect the building and price realistic timeframes for major items.
• Review the plan at least every few years, and sooner if a major item is brought forward by an inspection finding or a defect report, as discussed in our post on reading a defects report.
• Tie the plan to a maintenance schedule. A planned maintenance schedule tells you when items are likely to need attention; the capital works plan should have funding ready to match.
• Present the fund position plainly at every AGM — current balance, what the plan says is coming, and what the levy needs to be to stay on track — so owners are deciding with the same information the committee has.

Where we fit in

You do not need to be a building expert to get this right — that is exactly the gap we work to close alongside your committee and strata manager. We carry out the condition assessments a realistic plan depends on, price major items against the building's actual age and condition, and give an independent opinion as a major item approaches, so a special levy is never the first time owners hear that something big is due.

If your scheme's 10-year plan needs a condition assessment behind it, or you want help working out what's realistically coming in the next decade, our Strata Inspections & Repairs service can help, working alongside your strata manager, or get in touch directly.

Sources

• Strata Schemes Management Act 2015 No 50, NSW Legislation
• Section 73 – Administrative fund, NSW Legislation via AustLII
• Section 74 – Capital works fund, NSW Legislation via AustLII
• Section 76 – Use of administrative fund or capital works fund for purposes of other fund, NSW Legislation via AustLII
• Section 80 – Owners corporation to prepare 10-year capital works fund plan, NSW Legislation via AustLII

This article is general information, not legal or financial advice. Fund adequacy and levy decisions depend on your scheme's specific building, plan and history — get advice from your strata manager or a strata lawyer before acting. Full website disclaimer