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Levy Contributions

Bang for your buck...the devil is in the detail…knowledge is power!

Levy contributions remain a hot letter subject whether you live in strata scheme or company title block. If your block is to be maintained and properly managed, money should be put away for a rainy day when big budget items raise their ugly head.  I have found that those who are forward thinking and budget properly are prepared and owners are less stressed when something bad occurs because they have funds that may be resourced rather than raising special contributions.

Management of levy contributions for owners corporations is governed byPart 5 of the Strata Schemes Management Act (SSMA).

The underlying spirit of the strata legislation encourages owners corporations to invest money in any manner permitted by law – see Section 75. If you live in a company title block your constitution should deal with the right to invest. If that is not the case, directors can take a leaf out of the strata legislation and amend their constitution.

Section 76 of the SSMA provides a temporary fix for the transfer of administrative funds to the capital works fund, or vice-versa. Ourinterpretation of this section is a legislative process to deal with emergencies where there is a lack of money in either fund to meet expenditure. From our point of view, this should be the exception rather than the rule.

Section 77 provides the mechanics for an owners corporations to deal with a surplus of funds in either the administrative fund or capital works fund. It is our view that an owners corporation should tread carefully when they invoke these powers. Though it maybe tempting to pay back money, take note of a few important words in the section which we regard as cautionary markers. Section 77(1) requires a unanimous resolution before money can be reimbursed. We feel it is incumbent on any strata committee to take proper advice, based on a foundation of evidence, to explain to owners why it is in their interests and as a result their opinion that those funds are not best left where they are – namely in either the administrative or capital works funds, or both.

The constitution of the company is the place to look if it is recommended to distribute surplus funds. The same care should be adopted by directors in a company title before making similar decisions to distribute surplus funds to shareholders.

One of the main purposes to building a surplus of funds is to be prepared for the unforeseen. The added advantage of a surplus is that quarterly contributions can be maintained at manageable levels.

Section 78 deals with accounts opened and into which funds are held by owners corporations. These funds must be deposited into an account established in an authorised deposit-taking institution, in the name of the owners corporation. The section does not apply where a strata manager has been appointed and to whom that duty has been delegated.
Funds collected and controlled are trust funds whether by the owners corporations; companies; or delegated to a strata manager.  This must be done with the upmost of care and the records be available to all interested parties, such as owners, or in the case of company title, shareholders.In order to get the figure right relating to contributions for the administrative and capital works funds, section 79 provides that estimates be prepared which set out the actual and expected expenditure.  The two funds are quite different. The administrative fund covers such things the cost of day to day maintenance of common property; insurance; and recurrent expenses. The capital works funds are accumulated for expenditure to:·  paint and repair the common property;
·  acquire, renew and replace personal property;
·  renew and replace fixtures and fittings that are part of common property;
·  replace or repair common property; and
·  meet other expenses of a capital nature
(major repairs or improvements to common property).When estimating for either fund, the owners corporation must have and take into account, a statement of the existing financial situation of the strata scheme, including an estimate of receipts and payments.To assist this task, the legislation provides an owners corporation also take into account the 10 year capital works fund.If you live in a large scheme (comprising more than 100 lots) the estimate must include:·  specific amounts in relation to each item in respect of which money is to be spent or expected to be spent in the period until the next annual general meeting; and
·  a note as to any difference and why there is difference between the estimates and the 10 year plan (Section 80).

If you are concerned about your hip pocket, as most of us are, readDivision 2 as it basically codifies contributions by owners. From time to time we come across owners, including strata committee members, who metaphorically throw their hands in the air and suggest their shock/horror at the costs of running and maintaining their buildings.  Invariably a lot of these people have not accessed the records, or read, or understood the accounts accompanying the agenda of the annual general meeting.

Division 2 also includes and deals with;

·  setting of contributions to the administrative and capital works funds;
·  the affect of increased insurance costs;
·  levying of contributions;
·  liability for contributions by persons other than owners;
·  interest, discounts and payment plans;
·  recovery of unpaid contributions and interest;
·  orders varying contributions or payment methods,
·  effect of an order varying contributions where payments have been made;
·  order for the original owner to pay compensation for inadequate estimates and levies; and
·  contribution for legal costs awarded in proceedings between owners and owners corporations.

There is more we can deal with relating to financial statements and accounting records, some of which we have covered in previous articles, and some we will deal with in future articles. Save for self-managed schemes and despite there being a strata committee with a chairperson, treasurer and secretary, the bulk of the work and expertise connected with the finances of owners corporations falls to your strata manager. This is a proportion of work we do for our clients not to mention dealing with hundreds of emails; telephone calls; and face-to-face communications; and both formal and informal meetings. In our case we immodestly say….you are getting bang for your buck!

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