QLD: Q&A Using a Strata Loan to Pay for Improvement of the Complex

These Q&As are about taking out a strata loan to pay for items such as the painting or other improvements to the building.

Table of Contents:

• QUESTION: Can a body corporate committee lend money to lot owners to pay for services undertaken to their lot?
• QUESTION: Does a strata loan have to be entered into by all lot owners? If some owners can meet their share of the costs upfront, can the remaining loan get levied to the owners who needed the funds?
• QUESTION: I live in a complex that needs painting but does not have enough money in the sinking fund. Can the Body Corporate take out a strata loan to get the complex painted?

Question: Can a body corporate committee lend money to lot owners to pay for services undertaken to their lot?

The body corporate is located in Queensland, is a Building Format Plan and the Standard Module Regulations apply. Can a body corporate committee lend money to lot owners to pay for services undertaken to their lot?

If this is permitted, do these loans have to be approved by the body corporate at a general meeting?

Answer: There is no scope for the body corporate to lend funds, however….

The body corporate is a creature of statute such that its powers and limited to what the legislation provides for.

The regulation modules provide for the ability of a body corporate to borrow funds. However, there is no scope for the body corporate to lend funds.

That being said, there is a mechanism in the legislation that contemplates a circumstances where the body corporate can be engaged to carry out, or arrange for, services to be provided to lots (such as maintenance work) as long as the arrangement is by agreement with the lot owner and includes a mechanism for recovery of those costs. I could foresee a carefully drafted agreement to work within that mechanism that may act similar to lending.

Todd Garsden
Mahoneys
E: [email protected]
P: 07 3007 3753

This post appears in Strata News #548.

Question: Does a strata loan have to be entered into by all lot owners? If some owners can meet their share of the costs upfront, can the remaining loan get levied to the owners who needed the funds?

Answer: A strata loan is a loan to the body corporate. Whether you are party to the loan or not, you are liable should the loan go into arrears

A strata loan is a loan to the body corporate. Whether you are party to the loan or not, you are liable should the loan go into arrears.

That being said some corporations have allowed some upfront payments, but this can be a nightmare for the manager or treasurer from an accounting point of view and how to separate quarterly levies.

With all this said, why would you pay your share of the cost upfront unless you have money sitting in your account and earning very little interest?

If you are going to refinance your mortgage or use redraw, the rate will be less than a typical strata loan. However, you have to realise that although the rate is lower you will be paying it back over a longer period of time, which in turn could work out more expensive.

Also if you move you take the debt with you, whereas a strata loan stays with the lot.

Debbie Barker
StrataLoans
T: 1300 785 045
E: [email protected]

This post appears in Strata News #405.

Question: I live in a complex that needs painting but does not have enough money in the sinking fund. Can the Body Corporate take out a strata loan to get the complex painted?

Answer: The corporation can borrow for many different things as long as it is agreed to at an EGM or AGM and a resolution passed

Yes, a Body Corporate is able to borrow money for painting. The corporation can borrow for many different things as long as it is agreed to at an EGM or AGM and a resolution passed.

• The funds are taken as an unsecured loan and the responsibility of the body corporate not individual owners.
• Money can be drawn as a multi-drawdown facility, which means the body corporate only pays for what they borrow when they borrow it.
• Terms may be as short as one year or as long as 12 years depending on the needs of the body corporate.

Funding has been successfully offered to bodies corporate for over 15 years now and is being used for various needs including:

• To assist when a maintenance fund does not have sufficient money to cover costs but the work needs to be completed now.
• If a body corporate identifies several jobs need to be completed, instead of drawing this process out over time, and causing continual disruption, these works can be bundled together and finance used. This means the work is completed in one go – reducing disruption and often cheaper in the long run.
• When a projects blow out in budget and requires an extra injection of funds so borrowing can fill this shortfall.
• To buy out management rights.

There are many more scenarios, but as you can see it is now a popular and acceptable alternative for bodies corporate to consider when contemplating funding options.

The team at StrataLoans are able to assist with any further queries with regards to funding options in strata.

Debbie Barker
StrataLoans
T: 1300 785 045
E: [email protected]

This post appears in Strata News #308.

Have a question about using a strata loan to pay for painting or something to add to the article? Leave a comment below.

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Read next:

• QLD: Q&A Contingencies and the Sinking Fund Forecast
• QLD: Transferring money between funds (Standard Module)
• Strata Finance: The guide for Owners Corporations

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