COMMITTEES NEED TO MANAGE FUNDS FOR THE LONG-TERM

Three things to know:

• Committees must give considered thought to how they spend body corporate money.
• Statutory obligations exist to maintain common property.
• Committees must take financial decisions with the full strata community in mind.

As lawyers, we’re used to dealing with other people’s money. Usually that sits in our trust account, and we won’t act on it or do anything with it unless we receive specific instructions from our client.

A body corporate general account, sinking fund or administrative fund isn’t the same as trust monies, but it’s not far from it.

There’s a saying in relation to dealing with other people’s money that you should treat it as if it was your own. I don’t necessarily think that’s the case for a body corporate.

How we as individuals deal with our own personal finances might not necessarily be the best thing for a building as a whole.

For example, maybe I don’t like repairing gutters; I’m happy to let the water drain onto the ground.

But from a body corporate perspective, there’s a statutory obligation to keep gutters in good repair and condition to make sure that they serve the purpose for which they were constructed.

In that example, that’s not treating the money like I would myself.

The same goes for investing funds.

That’s why most body corporate bank accounts are usually lodged on long-term deposits, getting whatever the interest rate of the day might be.

They’re not being taken to the casino and put on red or invested in the share market or put in ETFs or Bitcoin. It’s very much a safety-first approach – which is appropriate.

It’s important for committees to step back and understand what it is they raise monies for and to make sure that they also then understand what their statutory obligations are with respect to the spending of it.

The administrative fund (in theory at least) should zero out every year. The caretaking remuneration is $50,000, so $50,000 will be spent. From a cash-flow perspective that clearly doesn’t happen that neatly, but there shouldn’t be a big surplus in your administrative fund from an accounting perspective at the end of the year.

Contrast that to the sinking fund, which has been raised for long-term capital repair and maintenance; it is there for tiling, for painting, for lift repairs and so on. So, there should be a balance of some description always sitting in there because it covers the capital expenditure required over the next decade.

We sometimes see clients trying to cut levies and trying to create a bigger balance in either account and not actually spend the money, but inevitably in ageing buildings this approach is going to lead to long-term consequences. The longer you leave things to repair, the more expensive they get and it’s hard to see labour costs coming down anytime soon in Queensland.

From a body corporate perspective, be careful managing the monies you’ve got and make sure that they’re spent prudently and in accordance with the legislative obligations you’ve got as a committee.

Article Contributed by Frank Higginson, Partner, Redchip Lawyers.