This article discusses whether committee spending on defect reports can occur without owner approval and use sinking fund money.
Question: Our complex is coming up to the end of the warranty period. The committee has employed a building inspector to compile a list of defects. Can the committee make this decision without approval for the spending?
Our complex is nearing the end of the 6 year, 6 month builders warranty period with the construction company and our BCC has employed a building inspector to inspect all 120 units. This will allow the BCC to present all building defects to the builder for rectification. The BCC have also employed a lawyer to represent all owners if the matter goes before the QBCC for adjudication.
The cost so far for this task is in the vicinity of $24,000 and the BCC, without consultation or approval from all owners, is paying for the services from the sinking fund. They intend to increase sinking fund contributions at the next AGM to raise the funds to pay for the project.
Can the sinking fund be used for this purpose?
Can the BCC expend this amount without approval?
Answer: The question is whether it is better to act outside the boundaries of the legislation to secure the rights of the body corporate or to adhere strictly to the legislation and let the warranty period pass?
Unfortunately, body corporate timelines for decision making don’t always match the timeline for other parts of the industry and sometimes an executive decision has to be made – the responsibility for this falls on the Committee.
The defect timelines often cause issues for body corporates as, while there is an extended period for body corporates to take action, in reality it also takes a long time for owners to organise the necessary funds and information to make a filing against the builder or developer. Many schemes are not really aware of the rules or don’t think about them too much until the deadline approaches – this isn’t necessarily bad management so much as it is human nature. Faced with the hard deadline of the warranty period, Committees find themselves in the position of needing to take action without having the time to seek proper approval.
The question then is whether it is better to act outside the boundaries of the legislation to secure the rights of the body corporate or to adhere strictly to the legislation and let the warranty period pass? There is probably no fixed answer to this as the decision may well depend on the strength of the case and the quantum of the defects, but many body corporates will opt to do as your site seems to have done which is take action first. Once that decision is made, the Committee can seek after the fact ratification of the decision. It’s not ideal, but neither is the construction industry, or apparently the construction of your building, and sometimes needs must.
If you object to that, then that is your right. I’d start by asking some questions to the Committee about the decision making process that has taken place and why action wasn’t taken earlier. If the Committee was acting in earnest in trying to secure the best outcome for the body corporate, they should be happy to discuss their rationale. Maybe you could volunteer to be part of the committee to assist with the decision-making at the scheme moving forward. If you think the choices of the Committee were egregiously incorrect, then you could look at the possibility of having committee members replaced or seeking some limitation over the commitment of any further costs. Whatever the situation, make sure you get as much information as possible in advance so that you can decide your response from a position of understanding.
It’s also worth noting that depending on the spending limits at your site, it is possible the decision was within the cost limit of the committee. You might want to check this with your body corporate manager – $24,000 would be the standard limit for a 120 lot complex. As for which fund the money should come from – most typically, legal costs are paid from the admin fund. I think it is reasonable to ask the rationale for taking the money from the sinking fund. You could put this question to the Committee, the body corporate accountant or the scheme’s auditor if you have one.
This post appears in the June 2022 edition of The QLD Strata Magazine.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
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