ACT: Can admin fund expenses be paid from the sinking fund if the admin fund is in deficit?

Question: Our OC’s General (Admin) Fund is in deficit and the strata manager has been paying day-to-day and reoccurring costs (including their monthly strata management fees) from the Sinking Fund. The EC has agreed to this arrangement, but the OC hasn’t agreed. Is this legal and what can be done about it?

Answer: The most appropriate course of action is to review the cause/s of the budget shortfall and address these appropriately.

The actions detailed within the question are improper, to the extent they are in contravention of the Act.

Sections 82 and 83 define the purposes for which the Sinking Fund can be used.

Specifically, Section 83 states:

83 Sinking fund plan — meaning of expected sinking fund expenditure

1. For this division, expected sinking fund expenditure means expenditure for the following purposes that the owners corporation reasonably expects will be necessary to maintain in good condition the common property and any other property it holds:
   1. the painting or repainting of any building (or any part of a building) that forms part of the common property;
   2. the acquisition of new property or renewal or replacement of property that it holds;
   3. the renewal, replacement or repair of fixtures and fittings that are part of the common property;
   4. the renewal, replacement or repair of anything else on the common property;
   5. for a building containing class A units — any purpose mentioned in paragraph (b), (c) or (d) that relates to defined parts of the building;
   6. for a building on a class B unit — any maintenance mentioned in paragraph (b), (c) or (d) that is authorised by a special resolution under section 24 (1) (g);
   7. any other capital expenses for which the corporation is responsible.

Section 83 of the Act precludes the use of the Sinking Fund for Administrative Fund (day to day expenses), regardless of Executive Committee or Owners Corporation resolutions.

The most appropriate course of action is to review the cause/s of the budget shortfall and address these appropriately. It may be as simple as cashflow timing, however if the problem is larger than an issue of timing, consideration should be given to convening a General Meeting for the purposes of raising a special levy to recover the deficit and allow for adequate administrative funds to operate under the provisions of the Act.

Nina Cannell
Signature Strata
E: nina@signaturestrata.com.au
P: 02 6185 0347