SPENDING VERSUS IMPROVEMENT LIMITS – MYTHS AND REALITY

When it comes to spending limits in strata schemes, there are as many myths as the ancient Greeks about who can approve how much to be spent on what.

The Body Corporate and Community Management Act 1997 (BCCM Act) and related Modules set out a number of spending limits. Some of these intersect with others, some need to go to general meeting, and some depend on the number of lots in a scheme.

The rules relating to them are scattered across the relevant Regulation Modules. This article sets them out in one place.

The major categories of spending include the:

1. committee spending limit (is a committee or general meeting required?)
2. major spending limit (are two quotes needed?)
3. common property improvement limit (what type of resolution is required depending on who is making the improvement?)

The committee spending limit

The default position for committee spending is $200 for each lot in a scheme. If the scheme has 10 lots, the committee can spend up to $2000 without approval at general meeting.

Does this include GST?. In practical terms, it does. If you are invoiced $2200, you have still spent it, even though you may be entitled to an input tax credit of 10% ($200) leaving a net spend of $2000.

That default position applies across the Standard, Accommodation and Small Scheme Regulation Modules. There is no limit in the Commercial Regulation Module and no committee for the Two-Lot Module.

The committee spending limit can be changed (for those that have one) by the body corporate through an ordinary resolution at a general meeting. That resolution can relate to spending generally or to a specific project. There is no upper or lower limit. If your 10-lot scheme wanted to allow the committee to spend $1 million – it could. It could also bring it down to a nominal amount to restrict a recalcitrant committee from spending anything (but beware the general meeting costs then for approving any spending).

The committee can exceed their spending limit in very limited circumstances, but those exceptions are rare and will not apply to spending that is not really an emergency. An emergency is something like urgent works after the 2011 floods (where we acted for the body corporate to allow the committee to incur up to $1 million in expenses). An emergency is not where the issue has been left sit for 3 years and is suddenly urgent because it hasn’t been properly dealt with previously.

Any spending above the default (or otherwise general-meeting approved) limit needs to go to general meeting for approval.

Major spending (also known as the two-quote rule)

The limit for major spending is also found in the Regulation Module. This sets out whether two quotes are needed before the body corporate can spend its funds and this limit imposes conditions about needing two quotes irrespective of whether the spending is considered at committee or general meeting level.

The default position is that the limit for major spending is the lesser of:

(a)       $1,100 for each lot in the scheme; or

(b)       $10,000.

So, if the scheme has 20 lots, the body corporate can spend up to $10,000 before needing a second quote.

If a scheme had 8 lots it would need two quotes before it spent $8,800.

Again, this can be changed by the body corporate with an ordinary resolution at general meeting.

The exception to needing two quotes for major spending is if there are exceptional reasons and it is not practicable for two quotes to be obtained. The example in the legislation is that the body corporate is looking for a type of good with particular characteristics and there is only one supplier.

The convergence of the spending limits

Take a body corporate with 100 lots. The default committee spending limit would be $20,000. The default major spending limit remains at $10,000. So while a committee could spend $15,000, it would need two quotes to do so.

If the spending was $25,000 it would need approval at general meeting with two quotes.

Improvements to common property by the body corporate

Then you need to deal with where the body corporate proposes to improve common property (as opposed to simply maintain it). Leaving aside for the moment the differences between what is maintenance and what is an improvement – these spending limits are subject to the same committee and major spending limits discussed above.

The thresholds here are:

The basic improvement limit

Anything under $300 for each lot in the scheme can be approved by the committee or by general meeting.

The ordinary resolution improvement range

Improvements that cost between $300 and $2000 for each lot in the scheme require general meeting approval by ordinary resolution. The body corporate can only pass one of these resolutions in each financial year.

Special resolution

Improvements that cost more than $2000 for each lot in the scheme need a special resolution.

Improvements to common property by lot owners

If an owner wants to improve part of the common property, the body corporate can authorise that by ordinary resolution.

However, the committee can approve it if the improvement:

• is a minor improvement;
• does not detract from the appearance of a lot or the common property; and
• there will be no breach of owner’s duties as an occupier.

The owner then assumes the obligation to maintain the improvement in good condition.

Of course, there is a carve out if the common property is subject to a grant of exclusive use to the lot owners concerned.  If so, its then just about the improvement being a minor improvement – the committee doesn’t need to worry about the other conditions.

The key thing here is what constitutes a “minor improvement”. It is not what the committee or body corporate thinks is “minor”. It is minor in the sense that it has an installed value of $3000 or less.

Don’t think you can put together five separate quotes for individual components of work to duck and weave on the spending rules. Spending on a ‘project’ means all costs needs to be lumped together for spending calculation purposes.

Keeping track of these issues can be a labour worthy of Hercules, but Hynes Legal is happy to advise on any complex spending issues.

This article was contributed by Frank Higginson Hynes Legal