Question: Our committee overspent on legal fees by $8000, and now next year’s levies have increased to cover the overspend. How do I challenge this financial mismanagement?
My body corporate committee unapologetically overspent last year’s budget for legal matters by $8000. The coming year’s budget has allocated funds to cover that overspend and increased our quarterly levy by $300 to about $1200 per quarter. I feel this is a ridiculous levy for a small 8-lot complex without a pool! The committee holds the majority vote regarding any whole-of-body-corporate action. The body corporate manager supports the actions of the committee. Is there any way to challenge this financial mismanagement?
Answer: You may want to think about what you want to have happen next.
Budgets can never be an exact projection of the future, so it is not uncommon or incorrect that some body corporate expenditure will exceed planned amounts.
However, there is some debate about how body corporates should deal with this, and you may get different answers from different people.
In theory, if the body corporate faces an unbudgeted area of expense, this should be dealt with by raising a special levy to cover the cost. However, this may be unworkable at a practical level. Organising meetings takes time and money, and even if required, owners may be reluctant to vote for extra costs outside the budget, resulting in wonky decisions that can lead to negative outcomes. Then you have to face questions as to whether schemes should artificially inflate budgets (and therefore levies) to accommodate potential costs at budget time or situations where if a plumbing job costs $3100 and the budget only allows for $3000 in plumbing costs, whether there be a special levy for the remaining $100? Most people would agree that answering yes to these types of questions doesn’t result in effective body corporate management, but it is where you might end up if you take a literal reading of the legislation.
More practically, most schemes will be prepared to undertake the costs of unbudgeted items provided they have the funds in the bank, and they are within the relevant spending limits. Adjustments to budgets can then be made after the fact as required. Following this path allows works to proceed as necessary and for committees to make the decisions required to keep the body corporate operating without being bogged down with too much red tape. However, it also gives a degree of leeway to committees, resulting in overstepping the boundaries from time to time. As you indicate, once the money is spent, there may not be much you can do about it. You can go to the commissioner’s office or seek to have the committee members changed, but neither of these things will reverse the initial action.
As your complex is an 8-lot scheme, it is not a surprise that the legal expenses may be unbudgeted. Most buildings of that size won’t have ongoing legal disputes. Whether it was reasonable for the body corporate to undertake the expense in this issue depends on the context – what the dispute was and how urgent it was. We don’t know those details from the question, but if you challenged the decision, that framing would have to be considered.
Your committee does at least seem to have acknowledged the issue by budgeting for the expense after the fact, and it seems like you have been able to have some dialogue with your body corporate manager on the matter. You may disagree with them, but at least they have been available and open to discussion.
As such, you may want to think about what you want to have happen next. If your point is that the system of body corporate management is imperfect, I think you will find most people will agree with you. A couple of imperfect areas relevant to this topic are why the legislation doesn’t allow body corporates to budget for contingencies and why spending limits are stuck at levels established in 1999 when, by inflation alone, they should be doubled?
If you want to take action further, you may have some cause for complaint. You can go to the commissioner’s office and see what they say. On the face of it, the costs here may have exceeded the committee’s spending authority.
Otherwise, you may have to accept that the situation is imperfect and move on. I understand this isn’t always easy, but it is often a good choice. Perhaps you could join the committee to have a greater influence on future decisions.
Lastly, you state that the costs of your levies are ‘ridiculous’. It’s always interesting to hear comments like this as they imply there is a right amount for levies or that levies are being spent on unnecessary expenses. If you feel your levies are high, that’s fine, but I recommend you look through the budget and find areas to cut back. More often than not, most body corporate expenses are non-discretionary costs that the body corporate is obligated to pay. Then, the discretionary costs will contribute to the quality of your scheme’s environment and, therefore, the property’s value. Good husbandry of a site can ensure that funds are spent efficiently, and not all schemes do this. Usually, it is much easier to complain about high costs than to bring them down.
There is an excellent article on expenditure outside budgets from Grace Lawyers that I often send out to people with this type of question, but it is well worth a read. It’s a clear-headed analysis for anyone with an interest in body corporate affairs: If it’s not budgeted for, can the committee spend on it? – Grace Lawyers
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
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