Maintenance is a big part of housing societies. To maintain the building, the common facilities, and to pay the society staff (security, janitors), every resident is charged a maintenance amount.
Before moving into a gated community, owners and tenants must know all about the society’s maintenance structure and how their contribution will be used.
In this article, we explain all about maintenance charges, how a unit is charged, how the collected money is used, how they can impact you financially, etc.
The management/RWA (Residents’ Welfare Association) has the right to collect maintenance charges from the owner or tenant. The maintenance amount is charged per square foot, or a uniform amount is levied on all the residents – whichever is agreed by the majority of the residents.
When a building is constructed, the builder takes the onus of maintaining the building until the building is substantially occupied for an RWA to form. The builder might request initial buyers to pay the maintenance amount of a year upfront during the purchase or in installments. This is perfectly legal as long as the builder uses the money only for the welfare of the building and has a valid audited record.
How should the builder handle the maintenance money collected?
There are certain guidelines involved here and the builders must abide by them. These guidelines and how a builder should discharge his/her duties when it comes to maintenance charges are discussed below.
Maintenance charges belong the society
The maintenance charges collected from the buyers belong to the society only and builders cannot use them for their gains. Here, the builder only takes care of the building for a limited period and the responsibility of managing and maintaining the building and its premises, in the long run this falls under the responsibility of the RWA once it is formed and fully functional.
An exclusive bank account
The builder/developer is required to create a bank account for depositing maintenance contributions exclusively. Once the RWA is formed, the builder should hand over the accumulated maintenance amount or the balance amount to the RWA along with the income, expenditure, and bank account details.
When the builder hands over the maintenance to RWA, it is mandatory that an auditor or CA (chartered accountant) endorse that the maintenance money has been used for the welfare of the building only.
Similarly, the lump sum maintenance amount deposited in the bank account will accrue interests. This interest amount solely belongs to the maintenance account only and cannot be used by the builder.
What is included in the maintenance charges?
– Common electricity and water charges
– Insurance charges
– Property and non-agriculture taxes
– Sinking or reserve fund
– Car-parking charges
– Society election fund
– Service charges
– Training and education fund
– Non-occupancy charges
– Expenses arising due to repairs and general maintenance of the building, including lift and other facilities maintenance and services.
– Salaries of society staff including security personnel, janitors, maintenance staff and their travelling allowances, etc.
What are the criteria for maintenance charges?
There are six types of maintenance charges with each having a different criterion and the residents are charged accordingly.
Sinking Fund – 0.25% of each unit’s construction cost (per annum).
Repairs and maintenance expenses of building – 0.75% of each unit’s construction cost (per annum).
Repairs and maintenance expenses of lifts – Divided among residents equally.
Service charges (security, assets, common area electricity, etc) – Divided among residents equally
Parking charges – According to parking slots given to each unit.
Water charges and property tax – Depending on the consumption of each unit.
Maintenance charges and GST
For the first couple of years post the construction of the building, maintenance charges will be unclear since the unit will only begin to occupy and the application of maintenance charges will be work in progress. The homeowners will set a standard and decide the maintenance charges that work for them both in the short and long term.
However, in July 2019, the Finance Ministry ordered that flat owners must pay 18% GST if their monthly maintenance contribution is more than ₹7500 and RWA’s annual turnover of supply of goods and services is more than ₹20 lakhs.
Maintenance charges and RERA
According to the RERA – Real Estate ACT (Regulation and Development) of 2016, the developer is responsible for the maintenance of the building and providing essential services to the residents until it is taken over by the RWA.
RERA also clearly states that home buyers who have agreed to the sale of a unit are responsible for making the required maintenance payments towards the association and contribute towards common electricity and water charges, municipal tax, ground rent, registration charges, etc. The owners are required to make the payment on the agreed date, time, and place as outlined in the agreement
Financial implications of maintenance charges
A society’s maintenance charges are decided based on the building’s life cycle cost and can influence the buyers’ decision. When the building construction is underway, developers might not bring up the maintenance nor discuss it in detail.
Nevertheless, when the property is ready-to-move-in, the developer will quote a maintenance amount considering all the expenses taxes, and other deposits. At this stage, the buyers have to pay one or two years of maintenance amount upfront.
For example, if the monthly maintenance is ₹4000, they will have to pay ₹48,000 (4000 x 12 months) or ₹96,000 (4000 x 24 months) initially and this will have an impact on their purchasing decision.
Waiving off maintenance charges
Though payment of maintenance charges are a mandate, they can be reduced or waived off for a stipulated time due to unexpected circumstances. The classic example would be the COVID-19.
Several societies in India had reduced the maintenance fee or have waived it off for a few months when the pandemic was raging and people had to take salary cuts or lost their jobs,
To conclude, buying a property is a decision that involves a substantial amount of money. Before signing the agreement, buyers must consider and analyse all the expenses including the maintenance amount they will be paying during their tenure. This amount that will be paid every month can amount to a significant amount in the long run if saved.
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