This article about budget plan levy reset case study has been supplied by QIA Group.
Is the “New Normal” Placing Pressure on Your Levies?
Continuing with budgeted essential repairs and scheduled Capital Works during COVID-19 is vital, but what happens when the financial capacity of the Owners changes?
Owners are currently faced with significant financial pressures and are advising Managers that they cannot afford to pay levies. Managers realise that Levy income is the lifeblood of all properties and will advise owners accordingly that they cannot afford NOT to pay levies, so having a clear understanding of the current and potential cashflows into the Fund is critical.
What does a building look like with significantly reduced income in the immediate future? A simple analysis of their Sinking Fund will provide Owners & Managers with a clear answer to this question and give them the tools to decide on the best course of action moving forward.
The industry has been strongly advocating the response to COVID-19 requires an increased focus on adaptive solutions for each building and that the work of the Managers in facilitating a “business as usual” approach is critical. With more people working from home, the strain on a building’s infrastructure is increased, so Owners must find a way to continue with necessary repairs, or risk long-term damage or perhaps even short-term injuries.
A QIA Group Case Study
“Covid Apartments” is a 10 Lot Holiday Let Building, 6 of the Apartments are owned by “Owner X”.
“Owner X” has lost his income as a result of the industry downturn and has advised the Body Corporate that he will not be able to pay levies for at least 6 months (A 60% funds shortfall into the Sinking Fund for at least 6 months). The Body Corporate for “Covid Apartments”, via their Manager, immediately commissioned a review of their Sinking Fund Plan to ascertain their current financial position, having had it last updated 3 years ago.
The review highlighted that following some savings in the letting of a Painting contract last year and a previous decision of the Committee to set aside additional levies for some non-budgeted works, there was sufficient funds available to allow them to reasonably and responsibly reduce their annual levy in the short term with no impact on any of their scheduled and budgeted works into the future. The analysis showed they were in fact ahead of their forecast income (a bit like being ahead on your Mortgage) and so when the unexpected happened there was an opportunity to adjust levies.
Their future levies were only increased slightly, allowing them to meet all their existing budget commitments and not pay any sinking, maintenance or capital works levies for a year.
They were also provided with a free 12 months subscription to QIA Group’s online sinking/maintenance/capital works fund forecasting service to enable them to monitor and manage any future financial shocks as things return to normal.
Despite difficult times, maintaining forecast expenditures is critical so it is vital that owners continue to fund their Sinking/Capital Works/Maintenance Plans if they can afford it, but if a change in income occurs or appears inevitable, QIA Group can assist with the analysis and amendments required to keep your budgets on track.
This post appears in Strata News #355.
Have a question about budget plan levy resets or something to add to the article? Leave a comment below.
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