This article is about checking your body corporate charges to be sure they are not overcharging.
Table of Contents:
- QUESTION: Our Annual Budget includes a single line entry of $50,000 in the Administrative Fund, simply stating ‘Consultant’. Is an entry like this permitted given that it does not apply to specific maintenance, insurance and other recurrent spending?
- ARTICLE: Is Your Body Corporate Overcharging?
Question: Our Annual Budget includes a single line entry of $50,000 in the Administrative Fund, simply stating ‘Consultant’. Is an entry like this permitted given that it does not apply to specific maintenance, insurance and other recurrent spending?
The Annual Budget, passed at our recent AGM, includes a single line entry of $50,000 in the Administrative Fund, simply stating ‘Consultant’. There is no corresponding Motion, quote or Committee resolution to explain why the committee is proposing to retain a consultant. In the absence of an explanation and widespread apathy (only around 15% of lot owners voting) the motion passed.
I note case law states “[The relevant legislation] provides that the administrative fund budget must only include estimates of the ‘necessary and reasonable’ spending to cover specific maintenance, insurance and other recurrent spending” BUT is an entry in the Admin budget (as above) permitted, given that it does not apply to specific maintenance, insurance and other recurrent spending?
Answer: Your first step, if you haven’t already taken it, is to actually ask the committee what this line item means. Put that request in writing and ask for details.
Your first step, if you haven’t already taken it, is to actually ask the committee what this line item means. Put that request in writing and ask for details. You can also search body corporate records to obtain information about the ‘consultant’.
Once you’ve done that, that will determine next steps. It might turn out the line item is actually quite warranted, for example. Generally speaking, you’d expect for line items to be a bit more detailed than that but then again, if the budget passed without any comment, then that tells me that the owners aren’t doing their job by asking questions and exercising oversight, so it is perhaps little wonder the item passed.
There are several adjudicators’ orders on this topic. Some orders have found that a line item like this MIGHT be ok, but it always depends on the particular circumstances of the case.
This post appears in Strata News #443.
Is Your Body Corporate Overcharging?
Great question! But this one is very difficult to answer because bodies corporate are different in so many respects. It is not possible to readily compare ‘like with like’. You need to take into account variables such as the age and size of the complex (how many units/apartments); whether it is a low or high rise; and what the common property consists of, for example:
- reception areas,
- lift/lift lobbies,
- recreation areas including pools, spas, sauna, tennis courts, BBQs,
- above or below ground parking.
Perhaps the real question is whether owners are getting value for the money they pay in levies – or bang for their buck! To answer this question requires a certain amount of self-help on the part of enquiring owners to ascertain if the costs for services and maintenance which the body corporate is paying for, are being provided at competitive rates. Fortunately, there are body corporate records (which must be maintained and made available on request) and other avenues of enquiry available to owners.
But before delving into too much paper-work and enquiry, take a close, objective look at the entirety of your complex – not just your unit/apartment or the driveway to the front gate. Is it well maintained or is it looking tired, in need of painting, with pool tiles cracked or missing, poorly maintained gardens etc. This visual inspection will give you a clue about what is or is not being adequately maintained.
Owner’s contributions and Body Corporate Levies
What are levies?
The BCCM site explains that “[b]odies corporate budget for expenses and then levy each owner in the scheme for the money they need to meet those expenses.”
All lot owners must pay a share of the body corporate expenses. This requires that contributions are levied on all owners annually to meet the administrative/running expenses of the body corporate and anticipated major expenditure in future years.
In compliance with the Body Corporate and Community Management Act 1997, the body corporate must prepare two budgets each year for consideration by owners at the annual general meeting for the Administrative Fund and Sinking Fund (and in some circumstances, a Special Contribution fund may be necessary). Both the Administrative and the Sinking Funds are detailed in the Proposed Budget circulated to all owners prior to the Annual General Meeting, when they must be approved by an ordinary resolution with a majority of voters.
These documents detail what amounts were budgeted for and actually spent in the previous financial year and the proposed income and expenditure for the coming year. With this information, you can track your levies by looking at the budget details over the past few years and see if there have been any substantial increases or decreases in levies and where these changes occur.
The cost of goods and services can be expected to increase from year to year. Body corporate levies can be expected to increase in line with the Consumer Price Index (CPI). Whilst most bodies corporate generally strive to keep levies down, care must be taken to ensure that lower levies are not achieved at the cost of the body corporate complying with its duty to maintain the common property in a good and structurally sound condition and inadequate commitment to maintaining a healthy sinking fund.
Review of the Administrative Fund and the Sinking Fund
The Administrative Fund provides for the estimated cost of ‘administering’ the body corporate over the next financial year and typically include building management/caretaking fees, body corporate management fees, cleaning of common property areas, common property electricity; insurance premiums, servicing of lifts, legal fees, repairs and maintenance of air-conditioning systems, pools and fire control systems; and security system maintenance.
When reviewing body corporate administrative costs, consider the following:
- Have there been any significant increases (or decreases) in these costs over the past couple of years?
- Have increases been adequately explained and do any decreases suggest a reduction in or deferral of certain repair and maintenance activities?
Looking at Some of the ‘Major Expense’ Items in the Administrative Budget
Building Manager / Caretaker
A body corporate may engage a building manager/caretaker. In smaller complexes the building manager/caretaker may be directly engaged as a service contractor for a specified term but in larger complexes building management/caretaking services are often a primary component of a ‘Management Rights Agreement’ sold by the developer at an exorbitant cost on completion of development of the scheme. The management rights holder then recovers its costs from the body corporate at a significant annual cost over which the body corporate has no control and which often extend over periods of up to 25 years.
There should be contracts/agreements in place for the provision building of these services. These are available to all owners and all agreements/contracts come to an end, these should be subject to regular review.
Body Corporate Management Fees
A body corporate may engage a body corporate manager to supply administrative services to the body corporate but is under no legal obligation to do so. Engagement must be authorised at a general meeting. At present body corporate managers are not required to be licensed in Queensland and there are no formal training requirements or qualifications needed to be a body corporate manager. Unlike management rights agreements, the length of the engagement of a body corporate manager must not be longer than 3 years.
The costs associated with the engagement of a body corporate manager to supply administrative services often appear very high. As there are no ‘prescribed fees’ charged by body corporate managers and finding out what fees they charge, which schemes they act for and, ascertaining whether the fees your body corporate manager charges are comparable to what other body corporate managers charge, is difficult – or is it?
There are many body corporate managers and a comparative indication of these costs can be obtained by requesting a proposal for the provision of these services from another body corporate manager. Should they be substantially lower you can raise this matter with your committee.
Insurance can be one of the most expensive items in any budget and each lot owner is liable to pay a contribution levied by the body corporate for the cost of insurance.
Legislation requires that the body corporate maintain public risk insurance of the common property and insure, for full replacement value, each building included in the scheme with insurance to cover damage and costs incidental to the reinstatement or replacement of insured buildings. To determine full replacement value the body corporate must, at least every 5 years, obtain an independent valuation stating the full replacement value of the building or buildings. The body corporate may engage a broker for this purpose.
The body corporate should review and compare premiums offered by various insurers each year to ensure that the cover offered is competitively priced. The Annual General Meeting (AGM) documents must include such insurance details as the name of the insurer, the amount of cover under the policy, a summary of the type of cover and the amount of the premium.
The Insurance Council of Australia has produced a ‘Strata Owners’ checklist’ about how to reduce the cost of insurance and urges strata unit owners to speak to their body corporate or strata unit manager and get actively engaged in the discussion about insurance cover for their strata complex.
Lifts are commonplace in many bodies corporate. They must be registered with the relevant state authority and maintained in accordance with applicable safety standards. Lifts have a long life span. There are a limited number of manufacturers, and as maintenance and servicing is technically complex, there is usually a long-term commitment to the engagement of a particular manufacturer/supplier.
Bodies corporate committees and building managers/caretakers rarely possess the necessary expertise to negotiate or oversight the maintenance services required. There is thus little alternative but to engage a specialist, accredited company, to supervise the firm servicing the lifts to ensure that the lifts are in good working order, that maintenance is being performed as required, and the body corporate is not being overcharged. It is possible to obtain alternative, competitive quotes for the provision of these services.
The provision of electricity to body corporate complexes will ordinarily be by way of an embedded electrical network – which serves multiple premises including residential apartments, commercial and retails lots and the common property.
Whilst electricity is consumed in a variety of ways (lighting, air-conditioning, underground carpark exhaust systems etc) one of the biggest areas of wastage in electricity is often leaving lights burning when not required – especially in the common property areas such as carparks.
Energy efficiency can be improved with timers and movement activated switches, light dimming, and by embracing changes in technology such as changing incandescent, halogen and fluorescent lighting with LED replacement technology. There are firms expert in the provision of advice not simply in relation to lighting but energy efficiency generally. Request a quote.
Legal assistance is usually required in debt recovery matters, the review by-laws and contracts pertaining to those services mentioned above, and when the body corporate (through the body corporate committee) is required to respond to or commence applications before the Office of the Commissioner for Body Corporate and Community Management (BCCM).
To ascertain if your body corporate or owners within are particularly litigious and/or if issues with which you have concern have been the subject of past proceedings/adjudication, visit Austlii. AustLII is a online free – access resource for Australian legal information – a free legal database: Adjudicators Orders
Other Services / Expenses
Services such as those listed below, can ‘collectively’ incur very significant expenses. They may be the subject of periodic contracts and renewed as determined by the body corporate:
- building maintenance including air-conditioning systems, pools and fire control systems
- cleaning of common property areas
- security system maintenance (access control systems, CCTV) and patrols
- non-capital expenditure
Short term contracts or the ad hoc engagement of tradies such as electricians, plumbers, tilers, painters and locksmiths etc and non-capital expenditure (eg replacing pool furniture and CCTV cameras and gym equipment) are matters often left in the hands of building managers/caretakers. The body corporate committee is however ultimately responsible for approving and ensuring appropriate oversight of such expenditure.
Full and proper records of expenditure must be maintained. Transparent bodies corporate will post such records on their portal. Owners can request copies of these body corporate documents from the committee, body
corporate manager, or whomever manages/maintains your body corporate records.
Whilst engagements of contractors may vary in length, all contracts eventually come to an end. With this in mind, all contracts should be regularly reviewed to ensure the body corporate is in a position to seek competitive quotes in a timely manner.
The Sinking Fund
A Sinking Fund must be established and maintained by the body corporate to:
- provide for necessary and reasonable capital spending in the coming financial year; and
- reserve an amount to meet likely capital spending for at least 9 years after the current financial year.
The Sinking Fund is for expenditure of a non-recurrent nature such as:
- repainting the common property internally and externally
- replacing air conditioning plant
- replacing/refurbishing lifts
- replacing carpets
- other capital expenditure.
Legislation does not state how future spending requirements should be determined. The Body Corporate Committee or an owner can estimate the likely spending requirements but prudently managed bodies corporate, especially, larger bodies corporate, usually engage a quantity surveyor to prepare a Sinking Fund Forecast. The forecast estimates what work will need to be carried out in forthcoming years and calculates what levy contributions will be required each year to cover those expenses.
The body corporate can invest the Sinking Fund monies. A healthy sinking fund balance is attractive to prospective owners, whereas the opposite applies and should be of real concern to owners, where the amount held in the sinking fund is low or unlikely to meet future needs of a capital nature.
Sinking Fund Forecasts are not routinely provided to owners, and many owners may not be aware they exist. If not published, an owner can request a copy but may be charged a fee. There are those who doubt the value of Sinking Funds Forecasts but in the absence of a professional forecast, there is a real risk that the body corporate will, because of a lack a prior planning, not be able to properly fund its future needs without imposing special levies.
The Sinking Funds Forecasts does not need to be slavishly adhered to and may need to be adjusted from time to time, to for example, bring forward the replacement of air-conditioning equipment or modest deferment of painting. Obtain a copy and see if the works to be undertaken in the Sinking Fund Budget, are generally consistent with the Sinking Fund Forecast and taking such expenditure into account, the forecast trajectory is generally on track.
A Special Contribution Fund may be required where there are insufficient funds in the Sinking Fund to meet, for example, the cost of repainting the common property or to deal with an unforeseen circumstance such as catastrophic structural failure. Insufficient funds might also be evidence of inadequate levying of sinking funds, perhaps out of a desire to keep body corporate levies artificially low. The decision to collect a special contribution, requires the body corporate must pass an ordinary resolution.
The circumstances requiring the imposition of such a levy should be closely examined.
Review of Available Body Corporate Records
‘Owners’ are entitled to access all body corporate records except where:
- the body corporate reasonably believes the record contains defamatory material
- the records are ‘privileged’ and a legal action has started or is planned between the body corporate and the person who wants to see the records
The body corporate cannot ‘ordinarily’ refuse to make documents available because of privacy legislation and must let you see and/or give you copies of the records within 7 days of getting your written request and fee.
The Owners Roll (which contain the names, address and contact details of all owners), may be useful if wishing to contact and discuss concerns of mutual interest to fellow owners.
Body Corporate Meeting Minutes
Apart from the annual budget documents mentioned above, Body Corporate Meeting Minutes (AGM, EGM and Committee) are already in the hands of the owners. These are an invaluable source of information and should be examined, as your concern may have already been the subject of past meeting motions.
Other avenues of enquiry, which cost nothing more than a bit of your time, include:
- Office of the Commissioner for Body Corporate and Community Management: provides a wide range of information and services to those who live, invest or work in community titles schemes in Queensland. Services include responding to telephone enquiries and enquiries lodged online. Services of the BCCM office.
- Austlii (Australia Legal Information Index) which, as mentioned above, is an online free – access resource for Australian legal information – which enables you to ascertain if your body corporate or owners are particularly litigious and/or if your concerns have been the subject of past proceedings/adjudication. Queensland Body Corporate and Community Management Commissioner – Adjudicators Orders
- LookUpStrata is Australia’s Top Property Blog dedicated to strata living, producing three
strata newsletters each week for almost 10,000 subscribers made up of lot owners, strata managers and strata industry professionals from around Australia. You can search articles on almost every strata topic, written by strata experts in response to questions raised by subscribers and you can ask questions online about issues that concern you.
- Google. Simply plug in search terms such as ‘Body Corporate’ and add for example the word ‘voting’. . . and see what pops up. Results will include articles from government bodies, body corporate owner organisations, body corporate managers, law firms and strata industry experts.
A Final Word (or two)
Apathy or lack of participation on the part of owners within bodies corporate is a major source of concern. The best way in which any owner can be satisfied that their interests are being properly protected, is to become actively involved in the affairs of their body corporate, to submit motions, attend meetings and vote – and not give their vote to a third party in the belief that another party will act in their best interest.
For do’s and don’ts about preparing motions, voting and the like check out these articles:
- QLD: Q&A Body Corporate Voting Rules – What You Can and Can’t Do
- QLD: Q&A AGMs, Motions in Strata and the Obligation to Act
- QLD: What happens to the money you pay for body corporate fees?
Disclaimer – Reliance on Content: The material distributed. The information herein is general information only and is not intended to constitute, legal, financial or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation. Whilst the information herein is Queensland centric, the same issues generally apply across all states and territories.
This post appears in Strata News #363.
Have a question about body corporate charges and levies in QLD or something to add to the article? Leave a comment below.
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