adjudicator's order

30 Jul Requirements of a Body Corporate – Setting Budgets & Contributions

Requirements of a Body Corporate – Setting Budgets & Contributions

“The setting of budgets and raising of funds to meet a body corporates financial obligations (including for maintenance) is one of the most fundamental requirements of the administration of a body corporate. A body corporate cannot function properly and in accordance with its legislative responsibilities if it has not adopted appropriate budgets and set corresponding contributions.

The legislation provides that a body corporate must, by ordinary resolution, adopt an administrative fund budget and a sinking fund budget for each financial year. The administrative fund budget must contain the estimate of the spending that is necessary and reasonable to meet the cost of maintaining the common property, insurance and other recurrent spending. The sinking fund budget must raise a reasonable capital amount to provide for necessary and reasonable spending from the sinking fund for the financial year, and to meet anticipated major expenditure over at least the next 9 years.”

The above statements come from an Adjudicators Order made in June 2019 in which a body corporate and various lot owners sought a ruling that motions, considered at the Annual General Meeting held in 2018 which were defeated, are deemed to be passed. The body corporate & the lot owners noted that various other meetings had been held and proposed budgets at these meetings were also defeated, however maintenance works were required to be undertaken at the building.

The adjudicators invited submissions from the respondents, all owners and the body corporate manager and received five submissions in response to the application.

Of the submissions received, owners noted that whilst they agreed that maintenance work was required to the complex, they had voted against the proposed budgets due to the increases and due to financial hardship.

The adjudicator noted “if owners have genuine concerns about the appropriateness of budgets that have been proposed, they should be prepared to substantiate their concerns and, ideally, proposed an alternative budget that in their view more appropriately meets the financial obligations of the body corporate. Owners cannot simply fail to pass motions to adopt budgets and set levies”

Further, an important point to note in the application is that the District Court has found that a body corporate is liable as soon as it becomes aware of a maintenance issue and fails to act on it within a reasonable time. The obligation to maintain the common property in a good and structurally sound condition should not be deferred because of inadequate funds & necessary work should be undertaken as soon as reasonably practical, particularly once the body corporate is on notice of it.

As such, with all of the information and submissions made, the adjudicator ruled that the failure to pass motions 5 and 6 at the AGM held in November 2018 was unreasonable in the circumstances and made an order that those motions deemed to have passed.

“I appreciate that the increase in contributions may be very difficult for some owners to afford. However it appears that owners are faced with this situation because the body corporate has kept levies inappropriately low for too long. Whilst the financial burden is regrettable, that is the nature of ownership of lots in a community titles scheme”

The full order can be read – http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QBCCMCmr/2019/327.html

Further information on Administrative & Sinking Fund Budgets can also be found on our website. Check out our Fact Sheets – https://www.hbcm.co/resources/fact-sheets/

And by visiting the Commissioners Office Website – https://www.qld.gov.au/law/housing-and-neighbours/body-corporate/finance-insurance/funds