Qld lot owners have many questions about the collection of levies. How much can a levy increase be. Can levies be raised in other ways?
Table of contents:
- QUESTION: We have a large common property expense of $1-1.5 million coming up within 12 months. If we hold an event and fundraise for some of the funds, how do we distribute this money to lot owners?
- QUESTION: Our body corporate needs to carry out remedial works and additional funds from owners are needed. Is the total amount divided by number or size of lots?
- QUESTION: Our levies have been increased substantially to cover a deficit from a few years ago. Can the body corporate increase the levies by a large amount?
- QUESTION: Can strata lot owners refuse a levy increase proposed by new body corporate managers if we do not feel the increase is warranted?
Question: We have a large common property expense of $1-1.5 million coming up within 12 months. If we hold an event and fundraise for some of the funds, how do we distribute this money to lot owners?
We have a large common property expense of $1-1.5 million coming up within 12 months.
We are actively looking at ways to save money and generate revenue to offset this cost for owners. If we raise money by holding an event that generates $100K+, what’s the most effective way to use the money e.g. give grants to owners, pay the supplier directly etc and what type of legal entity should we use to accept and hold the revenue?
Answer: A Body Corporate can try to minimise the cost of expenditure for owners, for example by good process including tendering and negotiation, but what it cannot do is engage in ‘fundraising’ to pay for a Body Corporate expense.
Given the money involved, this is a question that deserves legal advice. The Body Corporate should obtain that advice. In general terms, the Body Corporate and Community Management Act 1997 has one way, and only one way, for Body Corporate expenses to be paid, by Bodies Corporate – through contributions levied on lot owners.
Bodies Corporate are specifically prohibited from conducting business. A Body Corporate can ‘engage in business activities to the extent necessary for properly carrying out its functions’ and it can also invest funds not immediately required in the same ways that a trustee may invest funds.
What is deeply concerning about this question is that those fundamentals are being ignored. Yes, a Body Corporate can try to minimise the cost of expenditure for owners, for example by good process including tendering and negotiation, but what it cannot do is engage in ‘fundraising’ to pay for a Body Corporate expense, other than through the method the Act mandates; i.e. raising contributions.
An example of a Body Corporate engaging in business activity, to properly carry out its functions is costs recovery for an LPG charge, for LPG resupplied by a Body Corporate; for example for gas hot water heaters in each lot. In that instance, the Body Corporate can work out its supply costs and even amortised costs to replace the supply network so that those charges can be ‘user pays’. That ‘business function’ is however circumscribed by the restriction in section 210(3) of the Standard Module, that the Body Corporate’s administrative costs cannot be passed on to the user.
Finally, there is a long line of Adjudicators’ decisions which deal with windfall gains and surpluses. Typically excess funds received as contributions have to be paid back. Unscheduled, but necessary expenditures can also soak those funds up. Actively trying to generate a surplus is a big ‘no-no’. Using an alter ego for the Body Corporate is fraught. There are active cases in Queensland where such alter egos have, for example, been used to get around the restriction in the Act that a Body Corporate cannot own a lot in its own Community Titles Scheme. The best answer to this question then is ‘get expert legal advice’!
Michael Kleinschmidt
Stratum Legal
E: [email protected]
P: 07 5406 1282
This post appears in Strata News #592.
Question: Our body corporate needs to carry out remedial works and additional funds from owners are needed. Is the total amount divided by number or size of lots?
Our body corporate is authorising remedial works and maintenance and requires additional funds from owners due to not enough funds in the sinking fund. Is the amount required divided equally between the number of units OR should the amount be divided by the size of the units eg 1 bedroom and 2 bedroom etc?
Answer: The total should be divided by the unit entitlements ascribed to each lot.
The total should be divided by the unit entitlements ascribed to each lot. Effectively this is the second method you are suggesting. You can check the entitlements on your CMS and if you have any questions on the split you should check with your body corporate manager.
William Marquand
Tower Body Corporate
E: [email protected]
P: 07 5609 4924
This post appears in Strata News #516.
Question: Our levies have been increased substantially to cover a deficit from a few years ago. Can the body corporate increase the levies by a large amount?
Our AGM was in February 2020. 4 out of the 10 owners agreed to increase our Body Corporate fees. From December 2019 to June 2020 they decided to increase our fees by $500. We now pay $2044 every 6 months. They say the increase was to recover a deficit of $2000 from 2-3 years ago. The other owners are angry at this. We have no lifts, no pool, no tennis court just 10 townhouses.
Can the body corporate increase the levies this much?
Answer: There is no cap or limit on what the body corporate can approve but the levies are based on a forecasted budget.
The body corporate (through the owners) sets its own levies at general meeting. There is no cap or limit on what the body corporate can approve but the levies are based on a forecasted budget.
It may well be that only 4 owners approved the levy, but what also matters is how many owners voted against the levy. There would need to be at least 4 votes against the levy otherwise it is properly approved.
Bodies corporate aren’t run to make a surplus – so it is rare that things are over-budgeted for. They are normally run on fairly slim margins.
Todd Garsden
Mahoneys
E: [email protected]
P: 07 3007 3753
W: https://www.mahoneys.com.au/
This post appears in Strata News #375.
Question: Can strata lot owners refuse a levy increase proposed by new body corporate managers if we do not feel the increase is warranted?
Can strata lot owners object to a body corporate fee increase if we do not feel the increase is warranted? Our body corporate changed body corporate managers and the new strata managers are now intending to increase the strata fees.
Answer: If an owner disputes the levies then they have rights to do so by voting against the budget and levy at the general meeting.
I think the first thing to remember is that the strata manager is not increasing their fees – the levies are proposed by the committee and approved by owners at the general meeting. The strata manager will normally provide a recommendation to the committee based on the anticipated expenditure. With increases like this, it normally indicates that the prior years were under-budgeted and now that needs to be made up for.
If an owner disputes the levies then they have rights to do so by voting against the budget and levy at the general meeting. It can then be challenged in the Commissioner’s Office but you would need to show that the budgeted expenditure is not a reasonable estimate of the costs to be incurred by the body corporate as opposed to simply arguing about them being increased.
Todd Garsden
Mahoneys
E: [email protected]
P: 07 3007 3753
W: https://www.mahoneys.com.au/
This post appears in Strata News #252.
Have a question or something to add to the article? Leave a comment below.
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“Finally, there is a long line of Adjudicators’ decisions which deal with windfall gains and surpluses. Typically excess funds received as contributions have to be paid back.”
If one goes to the Supreme Court Library and searches the QCAT decisions using the term windfall or gains or surplus or even excess funds then cases do not leap off the page that suggests those contributions get paid back.
Briefs who can’t give a citation but claim there are a long line of decisions …… perhaps they need to lift their game. Just one decent citation would be all it takes to give genuine authority to the claim.
The following comment has been provided by Michael Kleinschmidt, Stratum Legal:
Hi Ben, this article is general information only. Its not intended as legal advice, which is (one of) the reasons that citations were not provided. I usually find that people asking for citations are those who want to rely on an article, rather than paying for proper legal advice. More power to you for using the Library – they are an underutilised resource these days. I might suggest however that you look at Adjudicators decisions, on Austlii, which is of course what I was referring to in the article…. you might need to ‘lift your (reading) game’ a bit. Best of luck in your endeavours.
Body corporate managers don’t ‘raise levies’. Owners vote on levies at general meetings via the budget and if an owner doesn’t like the budget presented and think they can do better, they are quite at liberty to put a motion to a general meeting with their own budget proposal. Which can then get voted upon like any other motion.
Does a large sinking fund levy increase (265%) have to be approved by a unanimous vote or a simple majority in a complex of 5 townhouses?
Always interesting to read what the next excuse for being late or not paying levies is likely to be. Too many owners know too little about how levies are arrived at and education is the key.
It’s not important to time- or understanding- poor owners that the legislation states their responsibilities and duties. They need to see how it works, be involved, want something from their scheme that isn’t there already (or that is high maintenance).
Dear owner….. you are important because
> you with other owners comprise the strata company
> you contribute to the success of this scheme
> you contribute to the failure of this scheme
> you have the power to influence other owners
We’d like to work with you
Totally agree with you.
Whilst what Todd is saying is likely true for an Administrative Fund budget there is an issue in relation to a Sinking Fund budget because the contributions may not bear any resemblance to the expenditure given contributions are collected to fund expected future expenditure. Just experienced a situation where owners were content with the budgeted contributions but not the expenditure which was for something not included in the 20 year forecast. If the proposed budget is varied by the maximum 10%, the regulations state that the contributions need to be adjusted likewise – to me that is an absolute nonsense!
This looks like yet another case of ‘tail wagging the dog’. The BCM is just a service provider… a very important service provider, but answerable to the committee and the owners who are the ones who make the decisions.