A regular query we receive as Body Corporate Managers is can we approve spending for project X? To answer the question, we need to investigate the details of project X to determine how the proposal fits into the legislative framework. In this article we will delve into improvements made by the Body Corporate, which differ from when the Body Corporate is requested to approve a lot owner’s improvement that will be covered in a future article.
Before we look at the approval requirements for different improvement types, we need to firstly ensure it is in fact an improvement and not maintenance.
The definition of improvement in schedule 6 of the Body Corporate and Community Management Act 1997 (the BCCM Act) states that an improvement includes:
a) the erection of a building; and
b) a structural change; and
c) a non-structural change, including, for example, the installation of air conditioning.
There are many instances of improvements that will be captured by definition due to the nature of change, which is not to be mistaken as maintenance with different approval requirements depending upon spending limits. A common example of an improvement misinterpreted as maintenance is repainting the building in a different colour. As this is a change, the colour element of the approval needs testing by the following criteria relevant to the Standard and Accommodation Regulation Modules of the BCCM Act:
Basic Improvement Limit (BIL)
This limit is defined by the cost of the improvement. If the cost of the improvement is less than $300 multiplied by the number of lots in the scheme, approval may be made by the Committee subject to committee spending limitations.
Ordinary Resolution Improvement (ORI) Range
This range is for when the improvement cost is more than the BIL but less than $2,000 multiplied by the number of lots in the scheme. The improvement cannot be broken up into separate projects and can only approve an improvement in the ORI range once per financial year of the Body Corporate by ordinary resolution at a General Meeting.
Special Resolution Improvement (SRI) Range
This range is for when the improvement cost is more than the ORI range, i.e. more than $2,000 multiplied by the number of lots in the scheme and is required to be submitted as a special resolution at a General Meeting.
Major Spending Limit
This test applies to the BIL and both ORI and SRI ranges as it determines how many quotes are required to be considered when seeking approval. The limit may be set by ordinary resolution however if there is no limit set, the limit is the lesser of either:
• $1,100 multiplied by the number of lots in the scheme
If the spending is above the limit, a minimum of 2 quotes is required.
Now that you have categorized the improvement in the correct improvement range, you may confidently put forward a motion for approval to either the Committee or General Meeting with the appropriate resolution type and number of quotes.
The last area you will need to consider is whether or not there is a funding provision for the improvement, which is often not considered in all the excitement. If the improvement is a major cost or capital in nature, a budget provision must be made within the appropriate fund to ensure there are sufficient funds available when payment is due. If there isn’t any funding provision already in place and there often isn’t for improvements as opposed to pre-planned maintenance, a special levy is required to be approved to fund the improvement cost.
This article was contributed by Denise Bretherton, Senior Strata Manager – Archers the Strata Professionals.