OC Guide for Body Corporate Committee Spending Limits

Effective financial management ensures a comfortable living environment and that the building maintains its value over time.  A key aspect of this financial responsibility with owners corporations in Victoria relates to budgeting and levies and extends to the body corporate Committee spending limits.

The Owners Corporation Act 2006 (‘OC Act’) empowers the OC Committee to make many decisions once they’re elected by the Owners Corporations. Owners corporations in Victoria may implement measures to ensure the responsible use of funds through the passing of ordinary resolutions at the AGM which put in place Committee spending limits.

What is an OC Committee?

OC Committees are formed by lot owners and/or proxy holders of lot owners. Most Owners Corporations in Victoria have a professional OC management company appointed to help with the day-to-day running of the OC. Where there is a professional OC manager in place, the Committee’s role is to oversee and approve the work of the OC manager (including approving the spending of OC funds).

Should Owners Corporations in Victoria then implement spending limits/authorities for the OC Committee and separately for the OC manager?

Find out more about OC Committee responsibilities in Victoria here.

The Role of the OC Committee in Financial Management

Responsibilities and Decision-Making Authority of the Committee

  • Budgeting and Financial Planning: The Committee is tasked with creating a viable budget that aligns with the community’s goals, ensuring funds are allocated for general administration, maintenance, repairs, insurance, and other recurrent obligations.
  • Levying Fees: They have the authority to set annual and special fees, as per Sections 23 and 24 of the OC Act, to cover the corporation’s financial needs.
  • Maintenance Plan Implementation: The Committee ensures that the approved maintenance plan is financially supported and executed effectively.
  • Financial Oversight: They oversee the financial health of the OC, ensuring that expenditures do not exceed the set limits without proper resolutions.

The Role of the OC Committee in Financial Management

Responsibilities and Decision-Making Authority of the Committee

  • Budgeting and Financial Planning: The Committee is tasked with creating a viable budget that aligns with the community’s goals, ensuring funds are allocated for general administration, maintenance, repairs, insurance, and other recurrent obligations.
  • Levying Fees: They have the authority to set annual and special fees, as per Sections 23 and 24 of the OC Act, to cover the corporation’s financial needs.
  • Maintenance Plan Implementation: The Committee ensures that the approved maintenance plan is financially supported and executed effectively.
  • Financial Oversight: They oversee the financial health of the OC, ensuring that expenditures do not exceed the set limits without proper resolutions.

OC Financial Record-Keeping

  • Comprehensive Records: The OC must maintain records covering all income, expenditure, assets, and liabilities.
  • Reporting: Records must enable true and fair financial reporting and comply with income tax and GST requirements.
  • Accessibility: Financial records should be accessible to the Committee and lot owners, ensuring transparency and the ability to inspect and copy records.

Types of Owners Corporation Spending Limits

In the OC Act context, spending limits are critical to financial governance. Section 72 (2) (e) of the Act requires that the proposed annual budget be presented for approval during the Annual General Meeting (AGM).

Let’s delve into the specifics:

Routine Maintenance: This refers to the regular upkeep required to maintain the property’s condition. It includes cleaning common areas, gardening, minor repairs, and general maintenance tasks. These expenses are typically covered by the annual fees and are essential for preserving the property’s value and ensuring a pleasant living environment for all residents.

Capital Expenditure (CAPEX): Capital expenditure involves significant investments in the property that will benefit it over the long term. Examples include repainting the building exterior, replacing roofs, gutters, down-pipes, lifts, and upgrading common area driveways. These are not regular expenses but infrequent and substantial improvements or replacements that enhance the property’s value and functionality. Contributions to the maintenance fund, guided by an approved maintenance budget, are set aside specifically for these CAPEX projects.

Emergency Spending: In the event of unforeseen circumstances, such as natural disasters or urgent repairs, emergency spending may be necessary. These are costs that should have been anticipated during the budgeting process and require immediate attention to prevent further damage or to ensure the safety of the residents. Special levies may be raised to cover these extraordinary expenses, ensuring that the property can swiftly recover from such events.

Legal Framework

The Act empowers the owners corporation to levy annual fees to ensure the building’s ongoing vitality and upkeep. These fees are earmarked for (Section 23.1.a) general administration, which includes the day-to-day operational costs; (b) maintenance and repairs, ensuring the building remains safe and well-maintained; (c) insurance, protecting against unforeseen events; and (d) other recurrent obligations, which may encompass a range of regular expenses tied to the building’s operation. This, in turn, protects the value of your investment and ensures a comfortable living environment for everyone.

Committee spending limits are vital in ensuring these fees are used effectively. The Act doesn’t dictate specific spending limits, but it empowers the OC itself to set them through an ordinary resolution at the Annual General Meeting (AGM). This allows residents to have a say in how their money is spent.

Section 43 – Payments from Maintenance Fund:

Subsection (3): Expenditure must not surpass the amount necessary for its intended purpose, nor any spending cap set by the owners corporation.

Subsection (4): All spending must align with additional restrictions or requirements imposed by the owners corporation.

Subsection (5): The owners corporation is obligated to promptly report any expenditure to the lot owners following its occurrence.

Following established body corporate Committee spending limits promotes financial transparency and accountability within the OC. It empowers residents to participate in responsible financial decision-making, ultimately leading to a well-maintained and financially secure living environment for everyone.

OC Committee Spending That Is Not Permitted

Here are some key things to avoid:

  • Personal gain or benefit: Committee members cannot use OC funds for personal gain or benefit themselves or for any unauthorised third party.
  • Unreasonable or unnecessary expenses: Spending should be reasonable and necessary for the proper functioning and maintenance of the building. Lavish or unnecessary purchases are not permitted.
  • Failure to follow proper approval processes: The OC Act outlines specific spending approval processes, often requiring Committee resolutions or owner approval at the AGM (Annual General Meeting) for certain expenses. Bypassing these processes constitutes unauthorised spending.

Consequences and Legal Implications of Unauthorised Spending:

Committee members have a legal duty to act in the best interests of the OC. Exceeding spending limits or engaging in unauthorised spending can have serious consequences:

  • Personal liability: In extreme cases, Committee members could be held personally liable if they acted recklessly or with a disregard for their duties under the Act. This may involve legal action by the OC itself or aggrieved residents.
  • Loss of trust and potential removal: Unauthorised spending can erode resident trust in the Committee. The OC Act allows for the removal of Committee members who breach their duties.

Legal action: Residents who believe the Committee has misappropriated funds can take legal action to seek recovery of those funds. 

Factors Influencing Body Corporate Committee Spending Limits  

The OC Act and recent updates like the Owners Corporations and Other Acts 2021 (Vic) emphasise responsible financial management through spending limits. But how are these limits determined? Here’s how several factors play a role:

1. Property Size and Complexity

Larger buildings (Tier 1 & 2 with over 50 lots) naturally have more extensive maintenance needs thus mandated to have a maintenance plan outlining anticipated expenses for major repairs and replacements (CAPEX) like roof repairs, elevator upgrades, or repainting the exterior. This plan and a dedicated Maintenance Fund, help establish a clear picture of future spending requirements, influencing the overall spending limit.  

Smaller buildings (Tiers 3-5) may choose to have or not have a maintenance plan but having one can still be a valuable tool in setting appropriate spending limits.

2. Financial Health of the OC

The current financial state of the OC significantly impacts spending limits.  A healthy reserve fund allows a more flexible approach, potentially enabling higher spending limits for unforeseen maintenance needs or proactive improvements. Conversely, an OC struggling financially might need to set tighter spending limits to prioritise essential repairs and ensure enough funds are available for day-to-day operations.

3. Future Planning and Long-Term Vision

Forward-thinking OCs consider future needs when setting spending limits. This may involve budgeting for upcoming major projects or spreading out costs for anticipated repairs over time.  The maintenance plan, if established, becomes a crucial guide in this process.  By proactively planning and setting aside funds, the OC can avoid the financial burden of unexpected large expenses and ensure the building’s long-term well-being.

Setting and Adjusting Limits

As stewards of an Owners Corporation in Victoria, recognising the various spending limits is essential for the upkeep and improvement of your property. These limits, established by the OC during the election of the Committee or the appointment of the Owners Corporation Manager (OCM), are ratified through a resolution at the AGM.

To illustrate, the members have agreed upon the following spending thresholds valid until the subsequent AGM:

  • To resolve that the Owners Corporation Manager must obtain 3 quotes for any work or expenses over $9,000.
  • To resolve that Chairperson has authority to approve OC expenses up to $9,000.

These measures ensure that the property is well-maintained and that any unexpected repairs can be addressed promptly, all within a framework that promotes financial responsibility and foresight.

As a member or manager of an Owners Corporation in Victoria, it’s crucial to understand the types of spending limits and how they contribute to the maintenance and enhancement of your property.

Conclusion

Body corporate Committee spending limits – as always it comes down to the right balance between ensuring good governance and not overly restricting the Committee’s role to manage the operations of the building and owners corporations.

Moreover, proactively engaging in the decision-making process during AGMs empowers you to set appropriate limits that align with your community’s goals. It ensures that every dollar spent contributes to a well-maintained, financially secure, and thriving living environment for everyone. Your voice matters – make it count in safeguarding your community’s financial well-being!

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.
Posted
May 30, 2024
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