Legislation Amendment Bill – Temporary Financial Relief Measures
Earlier this week, the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Bill 2020 was introduced to the Queensland Parliament to amend provisions of the Body Corporate and Community Management Act 1997 (BCCMA) and has passed last night.
The purpose of the amendment bill is to “provide measures to alleviate the financial burden caused by the COVID-19 emergency on bodies corporate for community titles schemes and owners of lots included in the schemes.”
The amendments to the BCCMA will be in place from the commencement of the Bill and will end on 31 December 2020 which include:
Sinking Fund Contribution Temporary Reduction
The option to reduce the sinking fund budget and associated levies by excluding forecasted capital expenses that can reasonably be postponed. There is also the ability to refund any existing levied amounts in excess of the adjusted (reduced) budget once adopted, resulting in the total levies collected for the year equal to the budget total. The sinking fund budget will be required to increase again the following year to meet the requirements to accumulate funds to meet forecasted capital expenditure over at least the next 9 years to return to compliance with the BCCMA.
Extension of Levy Due Date By Committee Authority
The authority for the committee to postpone the due date for levy contributions to no later than the financial year of the body corporate. This is to provide lot owners suffering financial hardship as a result of COVID-19 with additional time to pay their contributions. Previously, this was a restricted matter for the Committee and could only be approved by amending the original motion approved at a General Meeting of the Body Corporate and therefore reducing the administrative burden currently in place which can create further costs.
Penalty Interest Suspended
Suspension of additional penalty interest on overdue levies which can be up to 30%p.a. if previously approved to be in place at a General Meeting. Penalty interest that has already accrued will still remain though but will not accumulate further until after 31 December 2020.
Levy Debt Recovery Suspended
Suspension of the body corporate’s requirement to recover unpaid levies. The Body Corporate still has the ability to recover levies however it will no longer be a requirement to initiate proceedings to recover lot owner contributions that have been outstanding for 2 years. This amendment is to enable Bodies Corporate to defer commencing debt recovery action against lot owners experiencing financial distress due to COVID-19
Borrowing of Funds Approval Threshold Reduced
Temporarily increase (double) the maximum amounts that bodies corporate can borrow when authorised by ordinary resolution (that is, for most schemes, allow the body corporate to borrow up to $500 multiplied by the number of lots in the scheme, and double the upper limit for borrowing under the BCCMA
Conclusion
These amendments are intended to provide flexibility for Bodies Corporate to approve financial relief for owners affected by the impacts of COVID-19 by reducing the administrative burden that often increases costs and the financial impacts already occurring.
Caution should be exercised when considering these financial relief options keeping in mind that there are many cost obligations associated with the scheme that cannot be postponed, particular when it comes to safety and maintenance aspects and therefore the individual circumstances of the Body Corporate and the individual owners affected need to be considered.
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This article was contributed by Grant Mifsud, Partner – Archers the Strata Professionals
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Hi,
This is not very well thought through by the Government. It completely ignores the loss of Pay-on-time discount which is a substantially greater cost than interest to any Owner struggling To pay levies!
Hi Peter, while the new legislation doesn’t explicitly mention ‘discount’, the intent of the legislation arguably would (and should) cover it. Committees can potentially consider this on a case-by-case basis.
Temporary Financial Relief Measures: “Sinking Fund Contribution Temporary Reduction”, assuming one or more Lot Owners may apply for relief under the legislation, such reduction would apply to all Lot Owners?
Thank you for this comprehensive update, we had been intending to contact regards this so the timing is perfect.
Generally Body corporate Fees are due 1st June , which is just around the corner, I see there is no relief for Administrative funds which is usually higher than the “Sinking Fund”, 2 comments :
1. relief should be sought for “administrative fund” fees
2. have all Body corporations been advised of the new amendment regarding “Sinking Fund Contribution Temporary Reduction”? and should one apply to ones Body Corporate, presume the reduction or ‘discount’ is not expected to be repaid back to the BC and is a genuine discount to the Tenant?
Many Bodies Corporate sought relevant information including from the BCCM as was available at the time (April/ May) and organized and distributed EGM materials.
Such EGM materials may or may not totally comply with the legislation which is, in many ways, “post” the need for reasonable Body Corporate action given legislated time frames required for Body Corporate processes.
I believe one element of the legislation is conflicting with the way the sinking fund operates in practice and is a cause of confusion and concern.
It assists if we refer to the 10-year plan as a “sinking fund forecast” and the current expenditure as voted by the Body Corporate as being “the sinking fund budget” as approved by the vote of the Body Corporate for the particular financial year.
The approved annual sinking fund budget both allocates funds for future expenditure and maximizes the spending for the financial year and additional items would need to be added at an EGM should they become necessary. In practice, some projects do not come to completion in the “budgeted” financial year. The money for these items does not get refunded but the projects remain for completion in a future budget at a future date. The money saved remains available for the project on the adjusted forecast.
The 10-year projection as a “sinking fund forecast” reflects proposed expenditure but is not designed to be “locked in concrete” and items can be moved from one year to an earlier or later year as the needs become more obvious. Urgent items can be added and adjustments made as needs become obvious. Such forecasts are revised regularly.
Given the nature of the sinking fund forecast (for the next 10 years) and the practical management of sinking fund budgeted expenditure, the concept of removing elements from the budget and refunding elements of the sinking fund budget as passed by the Body Corporate at the AGM seems “un-reasonable” and “ financially impractical”.
The paper-work involved would, in my fairly long experience, be almost impossible for most BCMs to administer in a time effective/cost effective manner. Many management companies seem to operate with set programmes and any deviation from the norm is a cause for major problems and concern. Different items may have been saved for over considerable and varied time periods so the chances of accurate calculation of refunds could become most challenging. Lots have different lot entitlements and some may have been bought and sold while long term projects were being saved for.
To totally remove several different elements just increases the complexity of the problem and involves additional costs to administer. The costs to the Body Corporate to merely recognize and assist owners in financial difficulty by reduced levies becomes an expensive exercise for the full Body Corporate.
Surely the most efficient and simple method is to have an EGM to revise the budget and reduce sinking fund levies short term by adjusting the current budget and simply postponing relevant elements to a future date on the ten-year sinking fund forecast? Removing necessary items from “the sinking fund forecast”, refunding and then putting them back on the forecast is both costly and impractical.