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[UberOwner]

We have a large (for us) project coming up.  There will be an Extraordinary General Meeting where we vote on motions to engage builders and fund the project.  We have enough in the CWF to pay for this, but we don’t have enough for variations that could arise.

We probably can’t collect a special levy “just in case” of variations.  But if the variations arise, we’d like to be able to raise the special levy at that time without needing to go to another meeting.

One of our issues is that Council has given us a three month window to construct – we must start and finish within a very specific time period.  If the project drags on due to weather delays or whatever, our builders have to pack up and leave and come back the following year within that same period (it’s an environmental constraint to do with seasons and habitat).  So if we have weather or other delays that require us to pour extra money into this to get it finished within our time period we don’t have time to faff about with meetings to raise the extra funds.

One solution that came up is to ask for permission to raise a special levy, and only collect it if we find ourselves short and needing the funds to get finished.  Obviously, our motion would need to include background material explaining all of this to our lot owners and explaining the kind of events that might cause delays – for example paying overtime to get the job done faster or buying a more expensive cladding because our cost-effective cladding is out of stock and we can’t wait for it.

I have been searching web pages and legislation and hoping to find reference to a contingency special levy but I can’t find anything.  Does anyone know if we can approve a special levy “for project variations and time delays”, on the condition that we only collect it if we need it?

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[Quirky]

No, optional levies are not done. Sufficient money is either raised as a special levy in a general meeting or the motion to do so is defeated.  Strata law does not cover the possibility of the money only being collected in some situations. The OC cannot not collect a levy. However, you can raise it at one meeting, and cancel it at another. The funds from a special levy cannot be collected earlier than 30 days after the levy notice goes out (unless for emergency repairs), and the general meeting has a 7 day period between when the meeting notice goes out and a meeting that can approve a special levy. If your project creates expensive variations, it is hard to see that you can organise payment in that 3-month window, with all the other delays.

Some thoughts: Variations ALWAYS occur, especially in repairs and rectification. Your contract with the builder would normally have clauses dealing with variations. No sensible builder will start a project with an Owners Corporation without being sure they can be paid. After all, they know how strata works, and they know there is no guarantee that the OC will approve special levies, nor that the owners will actually pay them.

This situation is why strata finance exists. Take out a strata loan to cover the contingencies, which will only need to be drawn on if they occur. If the project is on budget then there’s no need to draw on the loan. The cost to arrange a loan is low.

Or raise a special levy that includes 10% contingency amount for the project, and tell the owners what it is for. If the project is on budget, then the following year’s capital works levy amount can be reduced by the extra money collected. If the owners are balking at paying a contingency compent, when the builder and project manager will explain that variations are almost certain to occur, then the project is in trouble. Are you sure that the owners will pay the levies anyway? The new changes to strata law requiring that payment plans be offered, is an impediment in collecting levies. The only reason for refusing a payment plan request is that the OC won’t then have enough money for essential work. So in theory, that does allow you to refuse a payment plan, but if your OC is liquid, that will only kick in once your account runs dry, and the first to apply may get it while the slow coaches get refused – triggering a mass application scenario.

If the owners are not prepared to raise enough money now, then you should not start the project. Keep in mind that the OC cannot legally sign a contract without all the money required being “in the bank” on that date – either because of valid special levies being approved (with the collection dates being sensible), or because of a signed strata loan facility. Signing a contract without sufficient money to cover variations could be a legal problem, which would bite the OC big time, if it is sued by the builder for non-payment for their work, or you miss the Council deadline, because the builder won’t start, or has downed tools, because the OC is unable to come up with the money.

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[UberOwner]

Thanks Quirky, that’s hugely helpful.

 

 

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[Jon P]

Use a Strata Loan, they are a line of credit that is only chargeable when used or “drawn down” .

I am a strata manager, one of my building was undergoing interior refurbishment works, the OC had sufficient funds for the work but did not have enough for any large cost variations so the OC applied for a Strata “loan” from one of the Strata Finance companies i.e. Lannock Strata Finance.  The OC applied for $500k, they paid a account set up fee (approx. $600). The funds are available for use but do not incur any charges or interest until they are used. Each drawdown is then considered to be a loan and must be paid back.

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