VIC: Q&A Setting Up a Maintenance Plan and Deciding on a Budget

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This article about setting up a maintenance plan and deciding on a budget in VIC has been provided by Joel Chamberlain, Horizon Strata Management Group.

Jump directly to the QUESTION you are after:

• QUESTION: Is a 10 year maintenance plan mandatory if the complex has less than 100 units or annual fees under $200,000?
• QUESTION: Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget. All levies are going to the administration fund. What about maintenance?

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Question: Is a 10 year maintenance plan mandatory if the complex has less than 100 units or annual fees under $200,000?

I am in Victoria and honorary Secretary to an owners corporation with 15 ground floor units.

I understand that a 10-year maintenance plan is not mandatory unless the complex has more than 100 units or annual fees over $200,000.

It is then called a prescribed Owners Corporation.

Answer: If the Owners Corporation is not classified as prescribed it does not need to prepare a Maintenance Plan.

You are correct. In the event the Owners Corporation is not classified as prescribed, it does not need to prepare a Maintenance Plan. The requirements for a prescribed Owners Corporation under the Owners Corporation Regulations 2018 Section 6 are:

1. An Owners Corporation that levies annual fees in excess of $200,000 in a financial year;
2. An Owners Corporation that consists of more than 100 lots.

Even if an Owners Corporation is prescribed, and prepares a Maintenance Plan, there is still no obligation to implement that Maintenance Plan. However, the question is, why would you prepare one and then not implement it? Seems counter productive.

In your case, you do not need to prepare a Maintenance Plan, but it is always good practice to do so. Buildings need regular and ongoing maintenance, without it, they deteriorate and end up costing more in the long term (maintenance vs replacement). So, have a discussion with everyone and put some pro-active plans in place to start addressing those long term items like painting and refurbishment works, which will not only sustain, but maintain or increase the value of your assets.

Joel Chamberlain
Horizon Strata Management Group
E: [email protected]
P: 03 9687 7788

This post appears in Strata News #411

Question: Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget. All levies are going to the administration fund. What about maintenance?

Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget.

The budget has been provided and shows that all of our levies are going to the administration fund and nothing toward the maintenance fund.

We currently do not have a maintenance plan and are not required to have one by law. If we sign this, does that mean we cannot use our money for maintenance issues later?

Can I charge the OC manager with a breach of OWNERS CORPORATIONS ACT 2006 (NO 69 OF 2006) – SECT 5: Owners corporation must act in good faith since they intend to reserve all our levies for themselves and force the owners to raise a levy if any maintenance issues arise?

Answer: If the Manager has not been provided with a proxy with specific direction to resolve and formally adopt the budget, then I cannot see how this resolution can be passed.

There are a couple of questions here which require answering, so bear with me.

Firstly, if there were no members present at the meeting (in presence or by proxy), then I cannot see how the meeting can proceed.

The only instance where physical presence is not required to proceed with a meeting is if the Manager has been appointed as a proxy on behalf of a lot owner. However, as an appointed proxy, unless explicitly instructed on how to vote on each resolution, then the Manager is restricted in what matters he or she can resolve without direction.

An example of this would be the appointment or renewal of the Managers contract, as this would bring rise to a potential conflict if the Manager were to resolve to re-appoint themselves. The same could be said for the Manager approving a budget which increases their annual management fees.

Again, if the Manager has not been provided with a proxy with specific direction to resolve and formally adopt the budget, then I cannot see how this resolution can be passed.

Your question about the Maintenance Fund contributions has several components which need to be considered.

Firstly, if you do not have a Maintenance Plan, then you have some flexibility with the way you can treat Maintenance Fund contributions and expenditure. However, it is always good practice to apply the same methodology you would to the operation of your Maintenance Fund as if it were formally adopted in accordance with the requirements set out under the Act – see Division 3– Maintenance plan.

By applying the same methodology to the operation of your Maintenance Fund (regardless of formal adoption), one would find it difficult to make a case that the Owners Corporation had not complied with its obligations under Sec 5 of the Act.

Sec 5. Owners corporation must act in good faith An Owner’s Corporation in carrying out its functions and powers—

1. must act honestly and in good faith; and
2. must exercise due care and diligence.

Secondly, when you refer to “Maintenance Issues”, there can be some confusion about the word “Maintenance” in the context of the Maintenance Fund.

The label Maintenance Fund is merely a term used to differentiate between the Administration Fund. The original terminology for a Maintenance Fund was, in fact, a Sinking Fund. Some states still use this terminology; however, in Victoria, we like to do things a little differently.

A Maintenance Fund is actually for the purpose of funding capital works for the Owners Corporation. These works are identified when you engage a suitable professional to prepare a Maintenance Plan. The Plan sets out the major capital items anticipated to require repair and replacement within the
next ten years.

So, to answer your question, no. You may use funds to address maintenance issues when required. Items which require general maintenance can be attended to at any point and payment made from the Administration Fund to meet those costs. If the item is anticipated during the financial year, it is always good practice to budget an allowance for upcoming maintenance in the budget.

Further, provision and general allowance for un-expected maintenance items should also be included in a budget. These typically fall under the categories of Electrical, Plumbing, Cleaning and General Repairs to Common Property. Depending on the size of your property will determine the amount set aside for these items. It can be as little as $500 for each item for a 10-lot development, or a minimum of $2,000 for significant developments over 100 lots. Proper planning with your budget leads to minimising any need for one-off special levies at the last minute.

The vast majority of small Owners Corporations in Victoria like yourselves don’t often have a Maintenance Fund. However, it is always good planning and pro-active management to consider implementing some form of contributions to a Maintenance Fund, or at the very least, ensuring you have adequate surplus in your Administration Fund to cover unforeseen expenses.

Finally, you can’t charge or breach the Manager for something the Owners Corporation is required to do. The Manager and the Owners Corporation are separate, and both have obligations under the Act.

You might argue that the Manager in some capacity, has breached their obligations under Sec 122.

Sec 122. Duties of Manager

1. A manager —

   1. must act honestly and in good faith in the performance of the Manager’s functions; and
   2. must exercise due care and diligence in the performance of the Manager’s functions; and
   3. must not make improper use of the Manager’s position to gain, directly or indirectly, an advantage personally or for any other person.

A breach under this section is, however, a serious accusation to make and you should be absolutely sure before you proceed down this path.

In reading between the lines, and I say this respectfully, I see the main issue here maybe lack of engagement between the members and the Manager. As Managers, we see this all too often when an Owners Corporation looks to the Manager to operate the Owners Corporation with little to no input.

A Managers role is to administer the decisions of the Owners Corporation. It is not to make decisions on behalf of the Owners Corporation.

When members do not attend an AGM, the Manager has no direction and cannot effectively manage your Owners Corporation. An AGM is the one opportunity members have to provide input to the management of their Owners Corporation each year. The Manager requires your input so you can direct them to achieve the outcomes you desire, and in turn, they can do what they’re engaged to do.

I’m not stating the Manager here is in the right, nor anyone is in the wrong. However, it’s merely the right hand not talking to the left, which never ends up working as intended.

I suggest discussing your concerns with your Manager and asking these questions. It seems relatively simple to resolve, and if necessary, convene another meeting to determine outcomes you deem satisfactory.

Joel Chamberlain
Horizon Strata Management Group
E: [email protected]
P: 03 9687 7788

This post appears in Strata News #340

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