Question: Our building insurance is due soon. We intend to pay the insurance premium from the sinking fund and then recover this money from the administration fund over the year as lot owners pay their fees. Is this allowed?
We are a new body corporate in QLD. We had our first AGM in February this year & there are 10 lots in the CTS. My enquiries relate to body corporate fees. Firstly, our building insurance is due soon and we intend to pay the insurance premium from the sinking fund and then recover this money from the administration fund over the year as lot owners pay their fees. Is this allowed to occur or does the insurance premium get paid from the administration fund? If there are insufficient funds to pay it, is a special levy/ contribution raised to pay it?
Secondly, lot owners want a CCTV system installed but there has been no budget set aside for this. Is this allowed to be paid for from the sinking fund or is a special levy/contribution to be raised to fund it?
Answer: Budgeting and finance can be particularly hard for new schemes as they typically start with zero in the bank.
Budgeting and finance can be particularly hard for new schemes as they typically start with zero in the bank.
Insurance should be paid for from the admin fund and ideally your first budget should have allowed for this. This might have included the possibility of raising higher levies on an initial basis to ensure sufficient funds for the insurance would be available at the time it was due. If the total of the budget was sufficient for the year it may also have been possible to change the way the levy was split so that the quarterly contributions were unequal with more money paid upfront in the first one or two quarters to allow for the insurance to be paid.
Still, it’s easy to say this after the fact. In practice it seems you may have sufficient funds across the year but some cash flow problems throughout it at times of large expenditure. This isn’t an uncommon problem. For an item like insurance it may be possible to spread the costs out with monthly instalment payments or to lower the total cost by taking out a six month policy – this would save you from having to make a large lump sum payment in one go.
Otherwise, many plans would still pay the insurance from the admin fund with the effect that this fund would go into deficit. The difference would effectively be ‘borrowed’ from the sinking fund (most of the time the money all comes from one account) and as levies are paid over the year the ‘borrowed’ amount is repaid. It’s not great practice to go into deficit but if it helps get you through a cash-flow issue over the short term it’s a practical solution, provided the money is paid back of course.
One alternative to this may be to have a special levy to increase the liquidity of the scheme. Lots of new plans struggle because they want to set up the building but lack the funds to do it. Special levies are rarely welcome but as a starter for the property getting owners to inject some funds can help ease this type of situation.
This post appears in Strata News #487.
William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924