Should your sinking fund forecast include an allowance for lift replacement?
We are frequently asked, "Why is there a lift allowance in our sinking fund forecast*?". Or sometimes, “Can you delete the lift allowance?”. These are understandable questions. The allowance is usually among the three most expensive in a forecast.
If you are an owner in a building with a lift, the majority of year-to-year lift related expenses are funded via the administrative fund. You may be signed up to and paying for a top of the line comprehensive lift maintenance agreement. However, there are generally additional, longer-term lift expenses which are not covered in that agreement or funded by your administrative contributions.
The money you pay into the administrative fund towards your lift maintenance agreement is for the routine maintenance and call outs required to keep the lift in optimum working order. These agreements are for lift maintenance, not lift replacement.
Confusion can arise, as comprehensive maintenance agreements frequently offer full replacement of any failed parts during the contract term. So, it is true, that if a component (for example, a door motor, button panel or sump pump) should fail, it may be replaced for no charge under the contract.
What comprehensive maintenance contracts do not cover are modernisations, upgrades, or full lift replacements, typically required at between 15 and 20 years. Upgrades may be necessary to satisfy safety and legislative requirements, energy efficiency, reliability, better performance, or other commercial considerations. The contracts also exclude the cost of forced upgrades because a replacement part is no longer available.
Once the reliability of a lift diminishes to the point where the lift contractor cannot confidently predict the service level required, the contractor usually stops offering a comprehensive, fixed-price contract. They instead charge per call-out/repair, which is typically more expensive.
Yes, some lifts may last longer than 15 years. We see 45-year-old buildings with the original lifts still in operation. These lifts are very much the exception to the rule. They are from a bygone period with a manufacturing quality now rarely seen. It is extremely unlikely that the major lift components in your new building will still be in operation in 45 years.
Based on actual costs we are seeing, the cost for a major upgrade/replacement of a 15-level lift is in the order of $200,000 to $300,000. Larger, high speed, high-rise lifts will cost upwards of $500,000 each.
Consideration should be given to proactively upgrading older lifts prior to total failure. Doing so may seem counter-intuitive to owners facing the prospect of parting with large sums of money (especially if a special levy is required). However, allowing for tendering, committee deliberations, lot owner voting, manufacturer lead times, and then installation, the lift upgrade/replacement process can easily take 12 months or longer. During which time the building's occupants and investors will suffer.
Many schemes engage an independent lift consultant to assess the operational and maintenance requirements of their lift and then review their maintenance or upgrade/replacement contracts, based on this independent, professional advice.
One benefit of a sinking fund forecast is that it lets you spread the cost of your lift upgrade/replacement across many years. With appropriate long-term funding, a challenging contribution call at the end of your lift’s life can be avoided. This is why we include an allowance for future lift upgrades in your sinking fund forecast, even if the building is relatively young.
*Some states use the terms capital works plan or maintenance plan instead of sinking fund forecast.
Leary & Partners Pty Ltd, Quantity Surveyors