Lot owners from QLD have questions about which strata account to debit for the purchase of items such as solar panels or the insurance valuation? Todd Garsden, Hynes Legal and Kaylene Arkcoll, Leary & Partners provide the following responses.
Question: For our Insurance Valuation, the Body Corporate Manager advises that the cost should be debited to the Admin Fund rather than the Sinking Fund. What is your opinion on which strata account we should debit?
Our Committee obtains a fresh Insurance Valuation about every 2 or 3 years eg the most recent one was done in Feb 2019, and the previous one in March 2016. There is no suggestion of obtaining one every year.
The Body Corporate Manager advises that the cost should be debited to the Administrative Fund rather than the Sinking Fund. What is your opinion on which strata account we should debit?
Answer: The sinking fund can only be used for spending of a capital or non-recurrent nature.
Todd Garsden: The sinking fund can only be used for spending of a capital or non-recurrent nature.
The insurance valuation would not fall into that category so must be spent from the administrative fund.
Kaylene Arkcoll: I agree with Todd Garsdens’ advice that the expense should be paid for from the administrative fund rather than the sinking fund.
I think there is a very persuasive section of the legislation which hasn’t been mentioned in the published discussion (see the comment section below).
The section of the legislation which requires the body corporate to obtain a full replacement valuation every 5 years also says how the owners are to pay for that valuation. (This is section 181 in the BCCMA (Standard Module) Regulation.)
- The owner of each lot included in the community titles scheme is liable to pay a contribution levied by the body corporate for the cost of the valuation of the building or buildings that is proportionate to the amount of the premium for reinstatement insurance for the building or buildings for which the owner is liable under this part.
- The contribution that the owner of a lot is liable for may be recovered by the body corporate as part of the owner’s annual contribution to the administrative fund.
The body corporate cannot transfer funds between the Administrative and Sinking Fund accounts. So for the body corporate’s accounts to balance, the insurance valuation must be paid for from the Administrative Fund.
The wording of section 181(4) is identical to the wording of section 182(3), which controls the payment of the building insurance premium from the administrative fund.
The more interesting point is that section 181(3) requires the cost of the valuation to be shared in the same proportions as the cost of the insurance premium.
Section 182 requires the cost of the building insurance premium to be paid by the lot owners:
- based on the interest entitlement schedule of lot entitlements, if the lot was created using a building format plan, or
- based on the proportionate cost of reinstating the lot, if the lot was created using a standard format plan.
The relevant point is that regardless of which of these apply, the cost of the replacement insurance valuation cannot be included as a standard line item in the administrative budget, as these costs are shared using the contribution entitlement schedule. Instead, like the insurance premium contribution, it must be calculated separately.
This post appears in Strata News #250.
Question: We are installing solar panels. Does the expenditure for this come from the sinking fund or a special fund set up to collect and pay for this one off expense?
I’m the chairperson of our body corporate committee. We have 10 units, two levels, and a common roof space.
We have been looking into solar panels and strata, and the decision to have solar panels added to our complex as part of the body corporate power requirements and usage.
My question: is this a capital expense or improvement for the complex? Also, can the expenditure for this install come from the sinking fund, admin fund or a special fund set up to collect and pay for this one off expense?
We seem to be of divided opinion, especially regarding which account to debit. Can you shed some clarity on this, please?
Answer: The spending can come from the sinking fund but if it hasn’t been budgeted for previously a special levy would need to be raised.
The installation of a new solar panel set up would be both an improvement and spending of a capital nature. The spending can come from the sinking fund but if it hasn’t been budgeted for previously (which it sounds like is the case) a special levy would need to be raised to replace the funds originally allocated to other spending. There is no ability to set up a special fund other than the administrative or sinking fund.
This post appears in Strata News #187.
- QLD: Q&A Sinking Fund in Deficit By Mistake. How Do We Fix This?
- QLD: Q&A Calculating Average Levies and Sinking Fund Amounts
Have a question about which strata account to debit or something to add to the article? Leave a comment below.