QLD: Should costs come from admin or sinking fund for upgrades vs like for like?

Question: From time to time we do a major replacement of body corporate boundary fences. If we’ve budgeted for “like for like” but decide to go with an improvement, which fund pays for what?

From time to time we do a major replacement of body corporate boundary fences. At budget preparation time, the levy for this has always been included on the Sinking Fund Levy.

• If we replace the existing wooden fence with a new wooden fence, is this “like for like” maintenance and therefore, paid from the Administrative Fund?
• If we decide the existing wooden fence is to be replaced by a Colorbond fence, is this considered an improvement and paid for from the Sinking Fund?
• What if the amount has been set at the AGM and included in the Administrative Fund Levy, but when quotes are received, we decided to install a Colorbond fence instead? How can we handle the BCCM legislative requirement that amounts cannot be taken from the Administrative Fund to pay Sinking Fund projects?

Answer: Many things in body corporate life aren’t ideal. The question is how do you handle them. My view is to be reasonable and transparent in your following actions with the aim of reaching a practical solution.

William Marquand, Tower Body Corporate

The legislation is clear in stating that the monies paid into the sinking fund are for:

The BCCM website goes a bit further, with a plain English explanation stating:

Money in the sinking fund can be spent on:

big or one-off items, like painting or structural repairs to common property replacing major items, like common property fences or carpets
other items that should reasonably be met from capital, like pool furniture.
On that basis, the costs of a replacement fence should be paid from the sinking fund.

However, it seems that in this case it the money for the fence has been already be raised as part of the admin fund. Not ideal, but then many things in body corporate life aren’t ideal. The question is how do you handle them. My view is to be reasonable and transparent in your following actions with the aim of reaching a practical solution.

As such, I would consider just paying the money from the admin fund, but putting the decision to do this to a number of pressure tests.

Firstly, you might want to consider how this money was raised. Was it in the budget (apparently it was in this case), or was there a specific motion to raise sums for the repair of the fence? If the answer to either of these questions is yes then it seems there is a reasonable expectation among owners that the funds were raised for the new fence. Owners are expecting and want the works to proceed and that should be the aim of the Body Corporate.

If not, then there doesn’t seem to be a mandate to undertake the works and you should probably start from scratch and look to approve the project through the sinking fund.

Then, to be transparent about the actions you are taking, you could write to owners to explain the situation or look to pass a motion recording what action you are taking and why. A motion might be required anyway depending on the spending limit costs. If owners are happy with this, then can it really be argued that the body corporate would be acting unreasonably if it paid the monies from the admin fund? On the other hand, if they are unhappy then now you know and you have to look at alternatives such as raising a new levy to be paid to the sinking fund. Either way the body corporate has brought the matter forward in a reasonable way to try and achieve its main objective of getting the fence built.

Is there a more technically correct solution than this that would allow the body corporate to adhere more exactly to the legislation? Possibly there is a pathway involving rescinding past motions and passing new ones so that the monies can be moved to the sinking fund. Perhaps monies could be repaid to owners and then a new levy raised in the sinking fund. Maybe you could do an adjustment of paying less into the admin fund next year and more into the sinking fund next. It’s feasible, but solutions like this tend to get complicated, confuse owners and cost money.

At some point you have to weigh up the costs and benefits of the situation and make a decision. Body Corporates shouldn’t play fast and loose with the legislation, but they are also asked to make reasonable decisions. Treading the line between these points can be complicated, but if you are transparent about the action you are taking then it is usually possible to reach an acceptable outcome.

Todd Garsden, Mahoneys

Will’s response covers most of what I would respond with. However, I would comment that:

1. The use of the admin or sinking fund has nothing to do with whether the works are maintenance or improvement. I agree with Will that the sinking fund is the correct fund for a fencing replacement.
2. The correct legal solution would be to adjust the budget (and consequential levies) so that the funds are effectively raised in the sinking fund – which Will offers up as one of the technical solutions.

This post appears in Strata News #612.

William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924

Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753