Question: When preparing our budget, should we reasonably expect the Body Corporate Manager to take into account the sinking fund forecast?
The Body Corporate had a Sinking Fund Forecast prepared. This included an estimate of painting all units in the scheme. This was an expensive task and was predicted to occur a number of years down the track.
The agreement with the Body Corporate Manager includes the following:
“….. Prepare for the purposes of discussion and approval by the committee a draft budget each financial year.”
Is it reasonable for the Body Corporate to expect that the Manager would include provision for the expenditure in the Sinking Fund Forecast to be considered when the Budget is prepared?
How could a Committee be seen to be acting reasonably if no provision was made for expenditure in the Sinking Fund Forecast?
Answer: It is reasonable to expect that the budget takes into account the sinking fund forecast. However, there is no specific obligation to do so.
To specifically answer the question – yes, it is reasonable to expect that the budget takes into account the sinking fund forecast. However, there is no specific obligation to do so.
The body corporate’s obligations are to approve a sinking fund budget which allows for a reasonable capital amount for anticipated sinking fund expenditure. This does not mean that there is an obligation to have a sinking fund forecast carried out by a qualified expert or to even specifically approve a sinking fund forecast.
In Los Monteros [2009] QBCCMCmr 420 the adjudicator relevantly provided:
“The budgets for the next financial year can be based on actual expenditure for the last financial year, with any necessary adjustments. It is not necessary to engage a professional quantity surveyor to prepare a sinking fund forecast, however, some attempt must be made to reasonably estimate anticipated expenditure of a capital nature over a ten year period.”
Ultimately, the body corporate manager would prepare a draft budget as part of their engaged duties to the body corporate, the committee can then amend that budget and then it is up to owners to approve the budget. There is no requirement for any of those steps to be tied to the forecast, although in most circumstances that would be sensible.
The forecast will not always be accurate, and there may be a reason for the budget to divert from the same figures in the forecast. The only way the approved budget could be challenged is if an owner can demonstrate it is not a reasonable amount being raised for the anticipated expenditure required.
This post appears in the July 2021 edition of The QLD Strata Magazine.
Todd Garsden
Mahoneys
E: tgarsden@mahoneys.com.au
P: 07 3007 3753
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