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NSW: Q&A Spending Limits & Unapproved Fees

The LookUpStrata Team
Barrister's fees

This NSW article is about spending limits & unapproved fees.

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Question: Our strata plan recently lost a legal case and now owes our former strata manager $110k in legal fees. At the recent AGM, it was decided this would be paid from the capital works fund. Should unexpected expenses like this be paid by raising a special levy?

Answer: The payment of another party’s legal fees that are not associated with expenses of a capital nature should be paid from the administrative fund and not the capital works fund.

In regards to the owner corporation’s legal fees, section 104(2) of the Strata Schemes Management Act 2015 applies, and the owners corporation must raise a special levy to pay its legal costs of any Tribunal proceedings.

However, section 104 of the Strata Schemes Management Act 2015 only applies to the owners corporation’s costs of Tribunal proceedings. It does not apply to the payment of another party’s legal costs.

The payment of another party’s legal fees that are not associated with expenses of a capital nature should be paid from the administrative fund and not the capital works fund.

If the legal fees were not included in the budget and the owners corporation has the required surplus funds in the administrative fund, they can pay from the administrative fund, which, if required, can then be replenished from the usual periodic levies.

If the legal fees were not included in the budget and the owners corporation does not have the required funds in the administrative fund, a special levy could be raised Alternatively, if there is surplus funds in the capital works fund, it could be paid from that fund and the owner corporation should, within 3 months, determine by general meeting resolution whether the money or any part of it should be reimbursed to the fund from which it was paid.

Matthew Jenkins Bannermans Lawyers E: enquiries@bannermans.com.au P: 02 9929 0226

This post appears in the February 2024 edition of The NSW Strata Magazine.

Question: What happens when a precinct within a Community Association votes down the proposed budget.

Answer: Depending on the vote of the other members within the Association, the budget may pass, be amended or voted down

The vote of the precinct would be taken to the Community Association meeting and put at that meeting – depending on the vote of the other members within the Association, the budget may pass, be amended or voted down. If the precinct carries in excess of 50% of the unit entitlement (and is financial at the meeting) the budget will not pass.

Andrew Terrell Bright & Duggan E: Andrew.Terrell@bright-duggan.com.au P: 02 9902 7100

This post appears in Strata News #509.

Question: Our owners corporation is part of a BMC. Is it regulation that the financial and annual budget of the BMC be presented to the strata committee or owners and approved at a committee meeting before the owners corporation AGM?

I am an owner in an owners corporation that has shared facilities (BMC) with another owners corporation and a municipal council.

In past AGMs the proposed budget amount of our owners corporation contribution to the BMC is included in our proposed budget but without any details of what are the BMC Expenses and what share we are responsible.

Is it a requirement or regulation that the financial (income & expenditure) and annual budget of the BMC be presented to the strata committee or owners and approved at a committee meeting before the owners corporation AGM? This would give a direction to the representative of each owners corporation on voting at the BMC AGM.

Answer: The strata management statement governing your BMC will set out shared facilities contributions proportions

The strata management statement governing your BMC will set out shared facilities contributions proportions and your BMC representative will likely be privy to the dollar value of same.

While the BMC budget does not specifically need to be presented to the Owners Corporation, the Owners Corporation must budget for the money it will need to credit to its capital and administrative funds for actual and anticipated expenses.

Leanne Habib Premium Strata E: info@premiumstrata.com.au P: 02 9281 6440

This post appears in Strata News #492.

Question: Could you please advise the maximum spending limit of a committee in a 75 lot scheme where a limit has not been set by the owners corporation at an AGM?

Could you please advise the maximum spending limit of a committee in a 75 lot scheme where a limit has not been set by the owners corporation at an AGM? I believe there is a formula that covers this. Also is there a requirement for a certain number of quotes to be obtained, depending on the value of works to be undertaken?

Answer: There is no spending limit as such

There is no spending limit as such on a committee in a 75 lot scheme where they have not been restricted by the owners corporation in relation to spending. The committee should act reasonably and where possible, take their budget into account when making spending decisions.

Likewise, there is no requirement for a certain number of quotes to be obtained for work regardless of value.

The restriction which the owner may be raising relate to ‘large’ schemes (101+ lots) and are noted under S102 of the Act

Andrew Terrell Bright & Duggan E: Andrew.Terrell@bright-duggan.com.au P: 02 9902 7100

This post appears in the June 2021 edition of The NSW Strata Magazine.

Question: What is the committee spending limit in a NSW complex of 73 Lots? Where the spending limit has not been set in a small scheme, is there a formula to work this out?

What is the committee spending limit in a NSW complex of 73 Lots? I’m aware this is not a “large scheme” as defined. There has not been a spending limit established by the owners corporation.

Our committee recently received quotes for fire protection services totalling over $101K. I am of the view we need to take this to a general meeting. I am aware that the QLD legislation has a formula to be used if a limit has not been set. Is this the same in NSW? If so, can you please provide the reference?

Answer: The only restriction legislated in NSW for committee expenditure, for schemes less than 100 lots, is with respect to legal fees.

The only restriction legislated in NSW for committee expenditure, for schemes less than 100 lots, is with respect to legal fees. Regulation 26 provides: STRATA SCHEMES MANAGEMENT REGULATION 2016 – REG 26

Approval for legal services costs

  1. The amount of $15,000 is prescribed for the purposes of section 103(2)(b) of the Act.

  2. For the purposes of section 103 of the Act, approval is not required under that section to the obtaining of legal services in relation to a matter that is not urgent if the cost of the legal services does not exceed $3,000.

The only other provision relates to “line items of expenditure”, but again, is only for large schemes.

The means the legislation has provided for owners to stop a decision of the committee is found in Schedule 2 – clause 9(3) – Schedule 2 of the Strata Scheme’s Management Act contains the rules in respect to the conduct of Committee meetings.

9 Decisions at meetings

  1. Voting at meetings A motion put to a meeting is to be decided according to a majority of the number of the votes cast for and against the motion by the members present (other than any tenant member) or in the manner set out in subclause (2). If there is only one member of the strata committee, the decision of the strata committee is the decision of that member.

  2. Voting in writing A motion proposed to be put to a meeting is taken to have been validly passed even if the meeting was not held if–
    1. notice was given of the meeting in accordance with this Schedule, and

    2. a copy of the motion was given to each member of the strata committee, and

    3. the motion was approved in writing by a majority of the members of the committee (other than the tenant member).

  3. Decisions to have no effect if opposed by more than specified owners A decision of a strata committee has no force or effect if, before the decision is made, notice is given to the secretary of the owners corporation by one or more owners, the sum of whose unit entitlements exceeds one-third of the aggregate unit entitlement, that the making of the decision is opposed by those owners.

  4. Voting rights cannot be exercised if contributions not paid A member of the strata committee is not entitled to vote on any motion put or proposed to be put to the strata committee if the member was, or was nominated as a member by a member who was, an unfinancial owner of a lot in the strata scheme at the date notice of the meeting was given and the amounts owed by the unfinancial owner were not paid before the meeting.

  5. Tenant member not entitled to vote A tenant member of a strata committee is not entitled to vote on any motion put or proposed to be put to a strata committee.

It is for this purpose that all owners are advised of their committee’s intent to make a decision. So owners can, should they wish, rally and take steps to prevent it.

Karina Heinz Progressive Strata E: manager@prostrata.com.au P: 02 9389 9599

This post appears in Strata News #466.

Question: Does the Owners Corporation have a spending limit for items not in the budget?

Answer: The strata committee may be restricted on spending limits or any other matter or type of matter determined by the Owners Corporation.

In NSW, the strata committee may be restricted on spending limits or any other matter or type of matter determined by the Owners Corporation.

Further, there are limits on spending by large strata schemes in NSW and safeguards for all schemes in relation to obtaining legal services. For example, a general meeting approval to obtain legal services is not required, if the matter is not urgent and the costs do not exceed $3,000.

Leanne Habib Premium Strata E: info@premiumstrata.com.au P: 02 9281 6440

This post appears in the October 2020 edition of The NSW Strata Magazine.

Question: Our strata was involved in a matter with the Lands and Environment Court. The Barrister’s fees were never approved at an EGM. Who is responsible?

We are a small strata of 5 townhouses all with different unit entitlements. All owners are members of the Executive Committee.

Recently we were involved in a matter in the Land and Environment court. The fees of the solicitor who was selected to represent the OC were approved at an EGM. The total estimate from him was approximately $36,000. However the fees of the barrister were not approved at an EGM or ECM. His bill has come in at $43,000.

His invoice states his rates had been approved. It does not say who has signed the agreement. The admin fund is already in the negative.

It seems the appropriate processes have not been followed. Who is responsible for paying for the Barrister in these circumstances? Is it the individual who signed without the approval of the Owners Corporation?

Answer: The legal process may have been followed but you may not be aware.

Was there a meeting where the approval took place? I am wondering if you may have overlooked some paperwork or even unreceived minutes. We’ve had this happen recently where someone didn’t get an agenda. The legal process may have been followed but you may not be aware.

I don’t see the barrister’s engagement any different from any other legal fees – this is per regs:

Strata Schemes Management Regulation 2016

Part 3 Clause 26

26 Approval for legal services costs

  1. The amount of $15,000 is prescribed for the purposes of section 103 (2) (b) of the Act.

  2. For the purposes of section 103 of the Act, approval is not required under that section to the obtaining of legal services in relation to a matter that is not urgent if the cost of the legal services does not exceed $3,000.

However, one needs to be mindful that litigation was afoot and hence the scheme needs to be best represented. The legislation also provides….

STRATA SCHEMES MANAGEMENT ACT 2015 – SECT 103

103 Legal services to be approved by general meeting

  1. An owners corporation or strata committee of an owners corporation must not obtain legal services for which any payment may be required unless a resolution approving the obtaining of those services is passed at a general meeting of the owners corporation.

  2. An owners corporation or strata committee may obtain legal services without obtaining approval under this section if:

    1. it is of the opinion that urgent action is necessary to protect the interests of the owners corporation, and

    2. the cost of the legal services does not exceed $10,000 or another amount prescribed by the regulations for the purposes of this subsection.

  3. Approval under this section is not required for the following:

    1. to obtain legal advice before commencing legal action,

    2. to take legal action to recover unpaid contributions, interest on unpaid contributions or related expenses,

    3. to take any other legal action prescribed by the regulations for the purposes of this section.

  4. A failure by an owners corporation or the strata committee of an owners corporation to obtain an approval under this section does not affect the validity of any proceedings or other legal action taken by the owners corporation.

  5. In this Division:

“legal services” includes obtaining legal advice and taking legal action.

So whilst one can ask all the questions – it is highly likely that the scheme is still stuck with the bill.

The case law on this is 2 Elizabeth Bay Road Pty Ltd V The Owners – Strata Plan No 73943 [2014] NSWCA 409. The question is has the decision to have them been ratified.

Karina Heinz W: https://www.prostrata.com.au/ E: manager@prostrata.com.au P: 02 9389 9599

This post appears in the August 2020 edition of the NSW Strata Magazine.

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