Question: We have a large common property expense of $1-1.5 million coming up within 12 months. If we hold an event and fundraise for some of the funds, how do we distribute this money to lot owners?
We have a large common property expense of $1-1.5 million coming up within 12 months.
We are actively looking at ways to save money and generate revenue to offset this cost for owners. If we raise money by holding an event that generates $100K+, what’s the most effective way to use the money e.g. give grants to owners, pay the supplier directly etc and what type of legal entity should we use to accept and hold the revenue?
Answer: A Body Corporate can try to minimise the cost of expenditure for owners, for example by good process including tendering and negotiation, but what it cannot do is engage in ‘fundraising’ to pay for a Body Corporate expense.
Given the money involved, this is a question that deserves legal advice. The Body Corporate should obtain that advice. In general terms, the Body Corporate and Community Management Act 1997 has one way, and only one way, for Body Corporate expenses to be paid, by Bodies Corporate – through contributions levied on lot owners.
Bodies Corporate are specifically prohibited from conducting business. A Body Corporate can ‘engage in business activities to the extent necessary for properly carrying out its functions’ and it can also invest funds not immediately required in the same ways that a trustee may invest funds.
What is deeply concerning about this question is that those fundamentals are being ignored. Yes, a Body Corporate can try to minimise the cost of expenditure for owners, for example by good process including tendering and negotiation, but what it cannot do is engage in ‘fundraising’ to pay for a Body Corporate expense, other than through the method the Act mandates; i.e. raising contributions.
An example of a Body Corporate engaging in business activity, to properly carry out its functions is costs recovery for an LPG charge, for LPG resupplied by a Body Corporate; for example for gas hot water heaters in each lot. In that instance, the Body Corporate can work out its supply costs and even amortised costs to replace the supply network so that those charges can be ‘user pays’. That ‘business function’ is however circumscribed by the restriction in section 210(3) of the Standard Module, that the Body Corporate’s administrative costs cannot be passed on to the user.
Finally, there is a long line of Adjudicators’ decisions which deal with windfall gains and surpluses. Typically excess funds received as contributions have to be paid back. Unscheduled, but necessary expenditures can also soak those funds up. Actively trying to generate a surplus is a big ‘no-no’. Using an alter ego for the Body Corporate is fraught. There are active cases in Queensland where such alter egos have, for example, been used to get around the restriction in the Act that a Body Corporate cannot own a lot in its own Community Titles Scheme. The best answer to this question then is ‘get expert legal advice’!
Michael Kleinschmidt Bugden Allen Graham Lawyers E: michael.kleinschmidt@bagl.com.au P: 07 5406 1280