Question: With a potential sale of our scheme, it is highly unlikely our old building will be standing in 10 years time. How do we deal with this in the forecast?
Interest is currently being shown by a number of developers in our 41 year old strata building. It is highly unlikely that the building will be standing in 5-10 years time.
What bearing does this have on our forecasting over the next 10 years for major items like window replacement, balustrade, etc? Monies are accrued now for expenses unlikely to be actualised. To reduce contributions, some owners have requested we remove these items from the forecast. Is this the correct way to deal with the problem?
Answer: The legislative duty to maintain the common property and forecast future expenses cannot be reneged on the basis of a potential sale of the scheme.
This is a really great question, and one that would many BCs would be facing, particularly those older schemes. In QLD under current legislation, you would need 100% agreement from every owner, known as a resolution without dissent, to sell the entire scheme to a developer. In QLD this is often hard to achieve in a larger scheme as even one owner refusing will completely halt the progress of this.
Regardless of any proposed, theorised, hypothetical or contractual arrangement to sell to a developer, a Body Corporate has a legislated duty to maintain the common property, forecast future expenses (10 years worth) and raise sufficient funding for this period in the form of a sinking fund. This legislative duty cannot be reneged on the basis of a potential sale of the scheme.
Should a BC fail to fulfil this duty to maintain the scheme during the period between now and the settlement date of developer purchase, an owner could argue the BC has fallen into disrepair and have a case to seek remedy for damages. Similarly if the proposed sale of a scheme falls through (such as post a world pandemic when many construction companies are falling into receivership) and year 10 rolls around, you will have a significantly underfunded scheme with many maintenance issues, again giving reason for owners to sue the BC.
This post appears in the October 2022 edition of The QLD Strata Magazine.
Dakota Panetta
Solutions in Engineering
E: dakotap@solutionsinengineering.com
P: 1300 136 036
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