NSW: Can admin funds be used to maintain private courtyards?

Question: Our owners corporation pays for gardening of private courtyards from the admin fund. Is this permissible, and can owners vote to allocate common funds to private property?

Our strata plan has been using funds from the admin fund to pay for regular monthly gardening of the courtyards of 18 of our 86 lots. The courtyards in question are marked as “private” on our strata plan. Is this legal under the Strata Schemes Management Act 2015, or are common funds only for common property? According to the strata manager, because this has been done for years, it can continue despite my formal request that it stop. There has never been a formal motion or vote on this matter.

Is this permissible? Can the owners corporation vote on a motion allocating common funds to private property?

Answer: Admin fund money cannot lawfully be used to maintain private courtyards. NCAT case law confirms the Tribunal cannot even order reimbursement.

The Strata Schemes Management Act 2015 (‘SSMA’) establishes a rigid financial framework designed to ensure that the contributions of all lot owners are utilised strictly for the benefit of the owners corporation and the maintenance of common property.

Section 73 and section 74 of the SSMA establish two primary funds of the owners corporation, namely the administrative fund and the capital works fund:

Administrative Fund

Section 73 of the SSMA mandates the establishment of an administrative fund for the scheme’s day-to-day expenses, such as utilities, strata management fees, and maintenance of common property.

Section 73(4) imposes a requirement that the owners corporation may only pay money from its administrative fund for the following purposes:

• payments of the kind for which estimates have been made under section 79(1),
• payments made in accordance with this Division on a distribution of a surplus in the fund,
• payments to a member of the strata committee of the owners corporation in accordance with this Act,
• other payments in connection with exercising its functions under this Act or the by-laws, or the Strata Schemes Development Act 2015, except payments that are permitted to be made from the capital works fund,
• any monetary penalty payable by the owners corporation under this Act,
• the transfer of money to the capital works fund or to pay expenditure that should have been paid from the capital works fund.

Capital Works Fund

The capital works fund, on the other hand, is a fund dedicated to major capital expenditure, such as roof replacement or lift upgrades.

Section 74(4) requires the owners corporation to pay money from its capital works fund only for the following purposes:

• payments of the kind for which estimates have been made under section 79(2),
• payments made in accordance with this Division on a distribution of a surplus in the fund,
• payments of amounts for the purposes of Part 11,
• the transfer of money to the administrative fund or to pay expenditure that should have been paid from the administrative fund.

Functions of the owners corporation

Section 9 and section 10 of the SSMA set out the functions of the owners corporation, including its obligation to maintain common property:

9 Owners corporation responsible for management of strata scheme

(1) The owners corporation for a strata scheme has the principal responsibility for the management of the scheme.

(2) The owners corporation has, for the benefit of the owners of lots in the strata scheme:

1. the management and control of the use of the common property of the strata scheme, and
2. the administration of the strata scheme.

(3) The owners corporation has responsibility for the following:

1. managing the finances of the strata scheme (see Part 5),
2. keeping accounts and records for the strata scheme (see Parts 5 and 10),
3. maintaining and repairing the common property of the strata scheme (see Part 6),
4. taking out insurance for the strata scheme (see Part 9).

10 Functions of owners corporation generally

(1) An owners corporation has such other functions as may be conferred or imposed on it by or under this or any other Act.

(2) An owners corporation must not delegate any of its functions to a person unless the delegation is specifically authorised by this Act.

Noting that there is no duty or function of the owners corporation contained in section 9 and section 10 for the owners corporation to repair or maintain lot property.

Decision in Taylor

In the decision of Taylor v The Owners Strata Plan No 53919 [2021] NSWCATCD 2 (‘Taylor‘), the Tribunal considered whether:

• the payment out of the capital works fund for the benefit of covered lot space was legal; and
• the Tribunal can make orders to affect reimbursement of the funds from the owners into the capital works fund.

The Tribunal in Taylor found that section 73 and section 74 were not complied with and that the owners corporation did not have the authority to pay for the maintenance of the lot property courtyards. The Tribunal examined its power under section 232 and found that the Tribunal did not have the power to grant the relief sought by the applicant to compel the lot owners to reimburse the owners corporation. Referring to the decision in Walsh v Owners – Strata Plan No 10349 [2017] NSWCATAP 230 [58]-[61], the Tribunal noted that even though it may make orders similar to mandatory and prohibitory injunctions, the Tribunal does not have the power to grant declaratory relief.

Suggested next steps

Even though the lot courtyards have been maintained regularly for years using the money in the administrative fund, or there had been payments made in error to maintain the lot courtyards, there is no precedent for misusing the owners corporation’s funds and the practice should cease.

The strata committee and strata manager have an obligation to carry out their duties in good faith and for the benefit of all owners. If your owners corporation is misusing the administrative or capital works fund, you may make an application for mediation to seek that the contravention of the SSMA ceases, and if mediation fails, you could make an application to the NSW Civil and Administrative Tribunal.

This post appears in Strata News #800.

Angus Lau
Bannermans Lawyers
E: alau@bannermans.com.au