Legislation changes to financial arrangements for bodies corporate
The Queensland Government has passed an amendment of the Body Corporate and Community Management Act 1997 under the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act 2020.
The purpose of the amendment is to provide measures to alleviate the financial burden caused by the COVID-19 emergency on bodies corporate for community titles schemes and owners of lots included in the schemes.
The amendment to the Act is temporary and expires on 31 December 2020.
It is important to note when reading the following that a body corporate’s “financial year” is based on when the building was established. You can find out your body corporate’s financial year end by looking at the annual general meeting minutes which are available via your owner login.
The amendment includes the following points:
- Suspension of penalty interest until 31 December 2020 (this is not a committee decision, it is set out in the Act as a mandatory requirement).
- In order to comply with the mandatory suspension of penalty interest provisions Capitol has removed the penalty interest function from all of its schemes until 31 December 2020 and has removed all references to penalty interest on levy notices.
- The committee may decide to suspend the body corporate’s obligation to recover unpaid levies however they are not obligated to do this.
- If the body corporate was required to commence debt recovery during this period then they must commence proceedings within 2 months of the expiry of this period (end of February 2021).
- The committee may decide to extend levy due dates to no later than the body corporate’s financial year end.
- The body corporate is not required to comply with debt recovery however they may decide to do so.
- The body corporate can adjust its sinking fund budget for the body corporate’s financial year so that the budget doesn’t include projected costs, if approved by ordinary resolution at a general meeting. Committee would still need to review their cash flow. For information generally regarding sinking funds, see article below.
- The body corporate has the ability to refund any existing levies to owners for the reduced sinking fund budget, if approved by ordinary resolution at a general meeting.
- For most schemes, the borrowing capacity of the body corporate is increased to $500 per lot in the scheme (previously $250 per lot), requiring approval at a general meeting.
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The body corporate sinking fund
A body corporate’s sinking fund is the fund in which money accumulates to allow a body corporate to pay for capital repairs and maintenance of a building.
The BCCM legislation provides that every financial year, body corporate committees must prepare a sinking fund budget. This is to ensure the sinking fund has sufficient finances to provide necessary and reasonable spending for the capital repairs and maintenance expenses in the upcoming financial year. The sinking fund budget is also necessary to ensure an amount is reserved to cover likely spending for at least 9 years after the current financial year.
It is these likely future costs; i.e. the projected costs that can be the subject of the adjustment referred to in the previous article. Note that the adjustment on account of COVID-19 relaxations does not mean that the costs are not going to be incurred. It simply means that the sinking fund budget is not going to provide for then for the period to 31 December 2020.
Other Strategies to manage the sinking fund budget and levies.
Maintenance is an important part of living in a strata community. If your building is poorly maintained that can decrease the value of your investment and often lead to costly expenditure. However, in uncertain times bodies corporate may wish to consider what expenditure can be delayed.
It is important to consider if delaying the major work will have any negative impacts on your scheme. For example, if you are repairing a major defect or replacing some defective infrastructure; e.g. an old hot water system, it may not be wise to delay the rectification works. However, delaying repainting the building may be beneficial during this time.
The repainting of the building is usually the most expensive maintenance item for a building. Repainting the building is also one of the easiest ways to control expenditure during these times. Deferring painting the building will not cause any structural concerns and can easily be deferred for 6-12 months.
Often a body corporate will wait until the springtime before replanting the gardens or undertaking a major makeover of the gardens in the common areas of their building. This is another expense that can easily be postponed. Given the effect of COVID-19 on the economy and therefore many unit owners the body corporate could decide not to carry out such work on the gardens this year. However, it is always important to remember that it is the responsibility of the body corporate to maintain the common property to a reasonable standard.
If there are expenses of an aesthetic or renovation nature that are on the agenda in the next few months, it may be a good idea to postpone these until your body corporate is better able to consider its financial position.
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