When buying a property that is part of a community titles scheme each owner becomes a member of the body corporate.
The Body Corporate and Community Management Act 1997 (BCCM Act) is the relevant legislation that regulates the operation of a body corporate in Queensland.
This legislation sets out rules including those relating to property management and financial management. As part of the requirements, each body corporate has an obligation to ensure and properly maintain the common property and shared services on the body corporate scheme land.
All owners must contribute to the running costs of the body corporate through payment of their levies.
A body corporate must maintain both a sinking fund and an administration fund and is required to approve a budget each year for both funds. These annual budgets will detail what income is required for the financial year and how the money is to be used.
The portion each owner must pay towards the administration and sinking funds is calculated as per the contribution lot entitlements listed in the Community Management Statement (CMS) registered for their body corporate. Where the contribution lot entitlement is different to the interest lot entitlement, there will be a separate budget for the insurance costs each year based on the interest lot entitlements listed in the Community Management Statement.
Each year at the Annual General Meeting (AGM), budgets for the administration and sinking funds are presented to owners to consider.
The budget motions at the AGM will detail the expected expenses for each fund, the total income required to meet these expenses and the levies required to meet this required income.
The BCCM legislation does specify that each fund should be used for the following purposes.
The administration fund will cover the costs to maintain common property and body corporate assets, insure the common property and other costs involved in running the body corporate.
An example of costs for the administration fund is listed below:
- Building insurance
- Fire protection
- Caretaker remuneration
- Management fees (payment to the body corporate manager)
- Day-to-day costs incurred by the body corporate.
The sinking fund will cover the costs for necessary spending for the financial year to replace major items such as fencing and common property furniture. This fund must also reserve an amount to meet likely expenses for at least the next 9 years.
A sinking fund forecast report is required to be kept on record to show the likely expenses in the next 9 years and how levies should be raised to cover these likely expenses.
The sinking fund forecast report is used as a guide to determine what funds should be collected for the sinking fund and the amount of levies that should be raised.
An example of costs for the sinking fund is listed below:
- Replacement of assets (e.g. fire doors)
- Large or one-off expenses
Body corporate fees may increase and decrease each year depending on the cost of expenses incurred and the costs of work required to maintain the common property.