This article about body corporate fees has been provided by Kelly Borell, Tower Body Corporate.
“What happens to the money I pay out in body corporate fees?” is one of the most common questions we receive at Tower Body Corporate.
It’s a good question, and every lot owner (or potential lot owner) is entitled to be given a comprehensive answer, and fully transparent documentation that shows exactly how the fees are spent and why.
The three types of fees
In most Schemes the fees will be used to cover expenses incurred in three areas:
- The body corporate administrative fund
- The body corporate sinking fund
- A special contribution fund
Your fees are your protection
In essence, body corporate fees are the money you pay to protect the value of your investment in your property.
Whilst you are responsible for keeping your unit in tip-top shape, it’s the responsibility of all lot owners (through the Body Corporate Committee representing the owners) to keep the common areas of the complex in tip-top shape. If overall building and common areas deteriorate, then your efforts to look after your own apartment could be in vain, because its value will be affected by the condition of the whole place.
Provision of the right “paperwork” to the right authorities, by due deadlines, is also the responsibility of the Body Corporate Committee. Failure to do so can incur fines or legal costs, and end up increasing fees (levies) for lot owners.
How are the fees determined?
The Scheme’s expenses need to be researched and detailed in the annual budget, which covers both the administrative and sinking funds.
The budget must take into account the amount needed in both funds to cover expected and unexpected expenditure, and must also consider the existing financial situation of the Body Corporate.
It is important that there is enough to cover the total of the expenses for the year. If the balance of the Administrative Fund is in deficit at the end of the year, money will need to be raised in the following year to clear the deficit.
As outlined in detail in our article Administrative Fund vs Sinking Fund, the Administrative Fund is for the everyday expenses of the body corporate, and include maintenance and cleaning, insurances, common property electricity and water usage, pest control, fire servicing, and body corporate management fees and caretaker fees, if applicable. (In smaller lots, sometimes the Body Corporate Committee will manage the Scheme internally if there are sufficient lot owners willing to serve on the Committee and undertake all the work involved that the body corporate manager usually does).
Sometimes there may be less visible costs, such as legal fees relating to disputes, fines, or debt recovery fees for lot owners who’ve not paid levies on time.
The Sinking Fund is for the capital expenses of the body corporate and covers costs such as painting, major repairs, replacement costs, acquisition of amenities, etc.
The legislation around Sinking Fund Queensland requires bodies corporate to have a 9-year sinking fund forecast in place at all times. The forecast estimates what works will need to be carried out in forthcoming years, and calculates what levy contributions will be required each year to cover those expenses as they become due.
Special Contribution Fund
Sometimes unexpected costs may arise during the year, which were not considered at the time the Administrative Fund and Sinking Fund budgets were completed. If this happens, a Special Contribution Fund may need to be established for any irregular issues with a fixed spending amount. Any Special Levies must be approved at a General Meeting by ordinary resolution.
How is the budget approved?
The budget is presented to all owners at the AGM and in the supporting minutes.
The AGM Notice includes voting papers along with financial reports and budgets so that each owner can make informed decisions when voting. Owners vote to either accept or amend the proposed budget.
The budget is very important, and we encourage all lot owners to read the AGM notice and scrutinise the budget and financial reports. It is important that you always vote on matters affecting the Body Corporate because it affects the value of your asset (and the overall Scheme) in the short and longer term.
If an owner is unable to attend the AGM, completed voting papers can be submitted to be counted at the meeting. After the meeting, a copy of the AGM minutes is issued to each owner detailing the levies agreed upon for the next financial year.
Does everyone pay the same fees?
Yes and no. It can be a little complicated and is based on each lot’s entitlement.
Sometimes all lots in a Scheme have the same (equal) entitlement. Sometimes entitlements vary based on the size or amenity of each property. For example, a 3 or 4 bed lot or a penthouse may have higher fees than a smaller lot.
Lot entitlements are set by the original owner (the developer) when the community titles scheme is established.
Lot entitlement schedules for your community titles scheme are recorded in a document called the community management statement.
There are two lot entitlement schedules.
They are the:
- contribution schedule
- interest schedule.
These can also vary according to when the Scheme was first set up.
If you’d like to know more about your Scheme’s lot entitlements – see the Qld Govt About Lot Entitlements article, or contact us.
Does everyone pay the same fees?
Obviously the lower the levies, the better, in most people’s eyes. Nobody ever wants to pay more than they have to.
Unfortunately, levies that are quite low can be a warning sign that the Scheme is not being managed as it should be, and could quickly become run down. A common marketing ruse is to offer low body corporate fees to entice buyers. Be wary of this, because as time goes by and it becomes obvious that ongoing maintenance requirements have not been adequate, all of a sudden you may find that your contribution to the Sinking Fund will increase as repairs or replacements become necessary. There are many documented cases of this happening, and the extra expenses could have been avoided if a more thorough maintenance schedule was introduced from the outset.
On the other hand, if levies seem too high, it could be because the Body Corporate Committee isn’t budgeting or managing funds effectively. If this is the case, request an itemised financial report so you can see for yourself how the fees are being spent. The Committee may be apathetic or blindly following bad advice from the Body Corporate Managers, so it’s always prudent to question expenses which are not fully itemised in financial records and documented properly in meeting minutes.
Have questions on Body Corporate fees or financial management?
What we excel at is providing lot owners and Committees with:
- the right information about their financial obligations and processes
- advice on setting budgets
- assistance with notification of AGMs, administering voting, distributing minutes and maintaining records in a fully compliant and timely manner
- efficient collection of levies so that annual maintenance and administrative works are adequately funded
- responsible cost management and accurate accounting to meet ATO requirements and provide lot owners with transparent financial records.
Contact Tower Body Corporate today for a confidential discussion about the financial administration of your Scheme. We’d be happy to help.
Have a question or something to add to the article? Leave a comment below.
This post appears in Strata News #290
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This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
This media release first appeared on the Tower Body Corporate’s website.