Bodies corporate embarking on works to common property may assume that if works are undertaken for the betterment of the scheme, it is irrelevant whether the works are classed as maintenance or improvements.
However, this article will highlight that this distinction is key in determining the type of approval required under body corporate legislation. This article explains how the classification of works dictates the approval needed and – with the help of recent orders made by adjudicators – sheds light on the hazy and sometimes contentious distinction between maintenance and an improvement.
How the distinction between maintenance and an improvement determines the type of approval needed
There is a regular misconception that approving common property works is simply a question of confirming whether the cost of the works is within the committee’s spending limit, or whether an ordinary resolution at a general meeting is needed. However, this is only the case if the works are classed as maintenance. Under Section 186 of the Standard Module, additional steps are involved when working out the correct approval type for an improvement. For an improvement, the type of approval required ranges from committee resolution to as high as a special resolution, depending on which of the following applies:
- basic improvements limit (committee resolution)
- ordinary resolution improvement range (ordinary resolution required)
- other (special resolution required).
The cost of the improvement is a major factor in determining which of these categories the work falls into (Section 186).
Basic improvements limit
The committee can only authorise an improvement to the common property by the body corporate if it is within the basic improvements limit. The cost of the improvement cannot be more than the number of lots in the scheme multiplied by $300 to be within this limit. However, this is subject to the general requirement that the cost of the improvement is also within the committee’s spending limit. If the cost of the improvement is within the basic improvements limit, but over the committee’s spending limit, the committee cannot approve the works.
However, even if the committee’s spending limit has been increased at a general meeting and the work is within that spending limit – if the cost is over the basic improvements limit then the committee cannot approve the work. Basically, the committee can only approve a body corporate improvement if the cost is within the basic improvements limit and within the committee’s spending limit.
Ordinary resolution range
If the improvement cannot be authorised by the committee, the next question is whether it can be approved by an ordinary resolution at a general meeting. The cost of the improvement must not be more than $2,000 multiplied by the number of lots in the scheme, to be within the ordinary resolution range. Importantly, the body corporate can only approve an improvement within the ordinary resolution range once in a financial year.
If the cost of the improvement is over the ordinary resolution range – or one improvement has already been approved within the ordinary resolution range in the financial year – the body corporate must pass a special resolution at a general meeting to approve it.
Before approving any common property works the initial question for the body corporate should be: are these works more accurately identified as maintenance or an improvement?
At first glance, the difference between common property maintenance and an improvement seems relatively simple. Some obvious examples of maintenance include painting a wall in a similar shade if the old coat is peeling, or replacing a dilapidated wooden fence with a similar wooden fence. On the other hand, installing a new swimming pool or upgrading from a wooden fence to a coated metal version would clearly be classed as an improvement. Unfortunately, characterising common property works as either maintenance or an improvement is not always this straightforward.
How the legislation defines ‘maintenance’ and ‘improvement’
Schedule 6 of the Body Corporate and Community Management Act 1997 (the Act) states that an improvement includes:
- the erection of a building; and
- a structural change; and
- a non-structural change (for example, installing air conditioning).
Section 36 of the Acts Interpretations Act 1954 states that a ‘change’ includes additions, exceptions, omissions, or substitutions.
While these provisions provide some initial guidance on what constitutes an improvement, they do not provide an exhaustive definition. Also, there is no equivalent definition of maintenance in the legislation.
Read the full article and relating adjudication orders here.