Sinking Fund Housing Society – Why Society Need It?

It is risky to continue occupation of a building which has run its life. A provision has been made in the byelaws, enabling a co-operative housing society to collect contributions towards a sinking fund from members at a fixed rate per month. The rate fixed under the bye-laws is 1/2 per cent per annum of the cost of construction of a flat, payable in equal monthly instalments, as provided under bye-law No. 67(b)(i) of the bye-laws from the set revised in 1976. A building sinks in course of time due to its wear and tear but the land remains as it is even if the building collapses.

The basis on which the cost of construction of tenanted structures should be fixed: There are some cases which pose problems to societies in adopting the basis for the purpose of fixing the amounts of contributions from members towards the Sinking Fund. There may be societies which have newly constructed buildings as also old tenanted structures, the tenants of which have joined the structures.

There may be some other societies, in which new flats are constructed over the old tenanted structures and tenants thereof have joined the societies. The cost of these old structures is much less than that the cost of construction of the new flats and the contributions from the members of the tenanted structures based on such cost are practically negligible.

A society having a separate old structure on a part of the plot on which a new building is constructed, should ascertain from an architect the future life of the structure and fix the amount of contribution from each member, taking into consideration the cost of reconstruction of a new building thereon, of equal size, if the tenants do not desire new accommodation of large size, at the time when the structure would become due for reconstruction, the area of each flat and the accumulation of the amount of contribution to the sinking fund invested in long term deposit along with interest at the time of starting reconstruction of the structure.

In the latter case, the members of the tenanted structure, on which new flats are constructed have to bear in mind that the reconstruction of the building would include the reconstruction of the structure.
The rate per sq. ft. of reconstruction of the flats is bound to be uniform for all flats. It, therefore, follows that the value of the old structure, for the purpose of fixing the amount of contribution to the sinking fund should be based on the rate per sq. ft. of construction of new flats on the old structure. This would enable the society to build up its sinking fund equal to the cost of reconstruction of the building in course of time.

Source: Times Of India (Link)