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Stop relying on special levies: how to calculate the 5% mandatory sinking fund in Tanzania
Section 61(1) requires every body corporate to ring-fence at least 5% of the admin budget for capital works. Here is the formula, a worked example, and why buildings that skip it keep hitting owners with emergency levies.
By Kasri Team · 9 Jul 2026 · 8 min read
The WhatsApp message arrives on a Tuesday at 6:47 p.m. The lift motor has failed. Repair cost: TZS 38 million. The committee needs TZS 475,000 from each of the 40 units by Friday — a special levy, because “there is nothing in the reserve.”
Forty replies follow. Twelve owners ask why their monthly service charge did not cover this. Eight refuse to pay until they see accounts. Three owners who have been current for years threaten to sell. The lift stays broken for six weeks while the committee negotiates, argues, and eventually collects 60% of the levy. The building loses a tenant. Two more units fall into arrears. Trust — the only currency a volunteer committee actually has — is gone.
This scenario is not bad luck. It is the predictable outcome of skipping Section 61(1) for a decade.
Two funds, one building — and why mixing them fails
Every Tanzanian body corporate must maintain two separate funds:
| Fund | Purpose | Examples |
|---|---|---|
| Administrative fund | Day-to-day operations | Security wages, cleaning, common-area utilities, guard uniforms, routine plumbing |
| Sinking fund | Major capital works | Lift replacement, roof waterproofing, generator overhaul, structural painting, pump room upgrade |
The Act requires both. It requires them to be accounted for separately. Money cannot move from the sinking fund to cover operating shortfalls without a special resolution at an AGM — and yet that is exactly what happens in most buildings when arrears deplete the admin fund and the committee “borrows” from reserves that were never properly funded in the first place.
The result: when capital equipment fails — and it always fails — there is nothing left. The committee reaches for a special levy. Owners react with fury because they believed their service charges already covered maintenance. Both sides are partially right. Both sides lose.
For the legal foundation, see the Unit Titles Act explainer — especially the section on the 5% rule.
Section 61(1) — the formula
The statutory requirement is precise:
Every body corporate must allocate at least 5% of the annual administrative fund budget to the sinking fund each year.
Note what this is — and what it is not:
- It is 5% of the admin budget — the approved operating expenditure for the year, not total service charge revenue if that includes other line items.
- It is a minimum — buildings with aging infrastructure should allocate more.
- It is annual — skipped years do not get a pass. The deficit compounds.
- It is mandatory — not contingent on surplus, owner mood, or committee preference.
Worked example — a 40-unit building in Upanga
| Line item | Amount (TZS) |
|---|---|
| Annual admin budget (approved at AGM) | 100,000,000 |
| Mandatory sinking fund allocation (5%) | 5,000,000 |
| Units (equal fractional shares) | 40 |
| Sinking contribution per unit per year | 125,000 |
| Sinking contribution per unit per month | ~10,400 |
Ten-year projection (no draw-downs, no interest):
| Year | Annual allocation | Cumulative balance |
|---|---|---|
| 1 | 5,000,000 | 5,000,000 |
| 3 | 5,000,000 | 15,000,000 |
| 5 | 5,000,000 | 25,000,000 |
| 10 | 5,000,000 | 50,000,000 |
Typical capital costs this reserve covers:
| Asset | Typical replacement cost (TZS) | Expected lifecycle |
|---|---|---|
| Lift motor | 25,000,000 – 40,000,000 | 10–15 years |
| Backup generator | 15,000,000 – 30,000,000 | 8–12 years |
| Main water pump | 3,000,000 – 8,000,000 | 5–8 years |
| Roof waterproofing (full building) | 20,000,000 – 60,000,000 | 10–15 years |
A building that allocates 5% faithfully for ten years holds TZS 50 million — enough to absorb a lift motor failure without a special levy. A building that skips the allocation hits owners for TZS 475,000 each in a panic, collects 60%, and watches arrears spiral.
Your building calculator — fill in the blanks
Copy this table for your next committee meeting:
| Your building | Value |
|---|---|
| Annual admin budget (last AGM) | TZS __________ |
| Required 5% sinking allocation | TZS __________ |
| Number of units | __________ |
| Per-unit annual sinking contribution | TZS __________ |
| Per-unit monthly sinking contribution | TZS __________ |
| Current sinking fund balance | TZS __________ |
| Years of 5% compliance (actual) | __________ |
| Gap (required cumulative vs actual) | TZS __________ |
If the gap is positive, the next AGM agenda must address it — either through a recovery plan, a phased catch-up levy authorised by special resolution, or a revised budget that embeds the 5% line explicitly.
This week’s action: Pull last year’s approved AGM budget. Calculate 5%. Compare to your sinking fund bank statement. If they do not match, you have your answer for why special levies keep happening.
Why special levies destroy trust — and feed arrears
Unpredictable financial demands trigger a predictable social response. Owners who pay reliably begin to suspect that their contributions subsidise defaulters. Owners who were already hesitant stop paying entirely — the free-rider problem accelerates.
Academic research on communal resource management consistently shows that contribution rates collapse when allocations feel arbitrary. A monthly service charge, approved at an AGM, with a published breakdown of admin vs sinking allocation, feels fair — even when the amount is high. A Friday-night WhatsApp demanding half a million shillings by Monday feels like extortion — even when the lift genuinely failed.
The 5% rule is not just accounting. It is a trust mechanism. Owners who can see the sinking fund growing accept that capital replacements will come from reserves, not emergency demands. Committees that skip the 5% for three years forfeit the moral authority to ask for a special levy when the generator dies.
Special levies — when they are legal, when they are lazy
Special levies are not illegal. They are authorised when:
- A capital need exceeds available sinking fund balance.
- An AGM passes a special resolution specifying the amount, purpose, and collection schedule.
- The levy is proportional to fractional share (same basis as service charges).
They become toxic when they are the default funding model — when every crisis is funded reactively because the committee never built reserves. That pattern is a governance failure, not a financial emergency.
| Scenario | Appropriate funding |
|---|---|
| Planned facade repaint (budgeted 3 years ago) | Sinking fund draw-down, AGM resolution |
| Lift motor fails; sinking fund has TZS 42M | Sinking fund covers full cost |
| Lift motor fails; sinking fund has TZS 2M | Special levy for gap, plus plan to restore 5% compliance |
| Lift motor fails; sinking fund never existed | Special levy — but recognise this as years of s.61(1) non-compliance |
Connecting sinking funds to maintenance lifecycles
Treasury and Facilities are not separate problems. The sinking fund is the financial expression of your building’s physical asset plan.
A minimal capital works schedule:
- List every major common-property asset (lift, generator, pumps, roof, gates, CCTV).
- Record installation date and expected replacement year.
- Estimate replacement cost in today’s shillings.
- Divide cost by remaining years to get the annual provision required.
- Compare that figure to your 5% minimum. If provision exceeds 5%, the AGM budget should reflect the higher number.
A building with a 20-year-old lift and no sinking fund balance is not facing an unexpected failure. It is facing a predictable failure with no plan — and the special levy is the bill for years of ignoring Section 61(1).
For the AGM workflow that approves the budget embedding this allocation, see how to run a clean AGM.
What compliant fund segregation looks like in practice
At month-end, a reconciled statement shows:
- Admin fund balance — operating expenses only.
- Sinking fund balance — capital reserve only.
- Every outgoing payment tagged to the correct fund.
- Every draw-down from sinking supported by an AGM or committee resolution on file.
- The 5% allocation met for the current financial year — or a written explanation in the AGM minutes for any shortfall.
Owners logging into a portal see their service charge split: operating portion and sinking portion. Transparency removes the “where does my money go?” objection that fuels boycotts.
When a unit sells, the clearance certificate reflects arrears against both funds — because an owner in arrears on sinking contributions is in the same enforcement chain as an owner who skipped operating charges.
This week’s action
Open your last AGM minutes. Find the approved admin budget. Multiply by 5%. That is your legal minimum sinking allocation for the year. Now open your sinking fund bank statement. If the numbers diverge, put “s.61(1) compliance plan” on the next committee agenda — before the next WhatsApp levy, not after it.
For buildings ready to auto-segregate admin and sinking ledgers with fractional-share billing, book a Kasri treasury walkthrough.
For the compliance environment that will inspect these figures, see the RERA-readiness checklist.
Updated July 2026 for RERA draft status.
Want help applying this in your building?