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Hi there and thanks in advance
My daughter has found a unit she and her partner like
4 units in small block no lifts, pool etc Ticks all their boxes and they might be able to afford it
there was a big water/drainage issue a while ago which it looks like cost a lot ($200K) for which the body corporate took a loan which has 18 months to go and funded via special levy and draining the capital works fund. My daughter is Ok with that cost for the next 18 months which is obviously reflected in levies. Inquiries seem to show that the issue has been resolved satisfactorily
My concern is that there is currently less than $9000 in capital works fund. There is a 2017 Plan but it doesnt seem to have been followed (quite common I believe). But in the 2 years of expenses provided in the strata report there seems to have been minimal capital works (only what is absolutely necessary or an emergency such as plumbing). Understandably they have probably been concentrating on the drainage issue and current levy and not wanted to spend more. According to the capital works plan from 2017 there should be over $25,000 in the Fund now. There is a quote in the strata plan for roofing works which if accepted would cost oost of the current Capital works fund balance.
The financial year of the strata starts 1 April 2025 and there are no budgets or any projections past 31/3/25 and the AGM in November 2024 just said levies to recur unitl next AGM due in May-June 2025.
The vendor owns and lives in another unit and is Treasurer of committee. I’m concerned there is a bit of a conflict of interest in the vendor and the fact the next meeting is after the sale.
I’m concerned that either levies will be struck In May -June or that the building maintenance has been and will continue to be not done leading to expenses down the track
On the other hand, there are still 18 months of the special levy to go so maybe they won’t want to increse in the short term but that still leaves potential issue of neglected maintenance.
My question is really how concerned should we be about the current balance of the Capital Works Fund and any other useful comments people may have
Thank you
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I think what you need to look at is the schemes ongoing 10-year maintenance plan and work out where you are in that.
The maintenance plan has to be renewed every five years (for the next 10) so it sound like you are in the middle of that cycle now.
What you want to establish is what maintenance still needs to be done to fulfill the requirements of the maintenance plan for the next few years and what has been sidelined to concentrate on the more immediate isse.
The fact that the vendor is allso the treasurer is actually an opportunity. He knows what the true situation is and has a vested interest in explaining the situation to you – if he deliberately misleads you, you could have a comeback.
So talk to the treaurer and ask him if he can spend half an hour explainging things to you. Then ask for a written summary of what he’s told you. If he’s in any way reluctant to provide that, be prepared to look elsewhere.
[A discussion about communicating with committees has been moved to HERE]
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
“4 Units in a small block” – but how are the Unit Entitlements split? Commonly in small blocks of equivalent Units, each owner has 1 Unit Entitlement, with in this case, the total being 4. Keep in mind that at general meetings, a regular motion requires a majority to pass – which if the Unit Entitlements are as assumed above, that means 3 of the 4 owners must agree. If the other 3 owners gang up, or are happy not spending the OC’s money, then the new owner cannot influence anything.
And for a special resolution (such as is required for major renovations) not only must a majority vote for a resolution, but also “not more that 25% are cast against” for it to pass, which in this situation of 4 equal Unit Entitlements, means that 3 of the 4 owners must vote for it. But sometimes in small blocks the Unit Entitlements are not split equally, and there might be (say) 100 Unit Entitlements, with 26 allocated to the 2 upstairs Units, and 24 to the downstairs. For special resolutions, either of the owners of the upstairs Units will have an effective veto over anything requiring a special resolution.
So before you buy into a small block, check how the Unit Entitlements are allocated, and find out if the majority and any owner with more than 25% of the entitlements is likely to treat OC expenditure…
When that happens, the Committee can spend money without going to a formal vote (or so we’ve been told by our SM), so you won’t find evidence of Committee decisions in the strata papers.
Is this true? In an ideal situation wouldn’t there need to be a record of a Motion, Resolution or Committee meeting notice?
That’s what our strata manager (NSW) told us. I’m in a building of 6 and everyone is on the Committee. We usually agree to spend money by a quick round-up of views on email. The SM (a professional group that seems to know it’s stuff) has said that we don’t need formal votes to agree to spend money – there may be a limit on that.
I usually keep a copy of those emails and who said what, just in case someone queries it later. But in most cases, an email from the Chair or Secretary seems to be enough for the SM to pay the invoice, even if there has been no formal meeting or resolution.
Given that’s how we operate, I think it would be helpful for a prospective owner to talk to Committee members and find out what projects are currently underway, what might happen next year, what contracts are causing us problems and so on.
My question is really how concerned should we be about the current balance of the Capital Works Fund and any other useful comments people may have
Thank you
Yes, you should be concerned.
Some ten-year plans are not worth the paper they are written on. My owners corporation had a ten-year capital works plan. It was written by consultants, who walked up and down the driveway and made a list of jobs to do. e.g. repaint the garage doors, replace window fittings, maintenance pipework … Then they assigned a cost to each job. They determined a date for doing each job. They added inflation if it is going to be done in a future year. Then they calculated how much money we need to save each year to pay for these jobs in the future. That amount became the capital works component of our strata levy.
This is a reasonable approach. The biggest problem was that the money was NEVER spent on these planned jobs. The money was spent whenever a disgruntled owner demanded a repair (which was not always common property).
An owners corporation must have the discipline to keep the capital works money SEPARATE from the day to day administrative (maintenance) money.
There are two components of your strata levy:
Administrative fund: At the start of the year, you work out how much you need to cover things like insurance, electricity, water, building manager, pool maintenance, gardening, insurance excess for claims, elevator maintenance, “general repairs” etc.
Capital works fund: is only for the big jobs listed in your capital works plan. This is the money you don’t spend until it is time to do the big jobs in the capital works plan.
About “general repairs”
One of these funds should also allocate money for “general repairs” for when someone calls to fix something. You should not be dipping in to the money set aside for the capital works plan.
At the end of they year, you can look back on what you spent on “general repairs” and determine if that figure should be changed for the next year’s budget.
At a guess, almost every strata plan is dipping into its capital works fund money for “general repairs” or to pay for shortfalls in its administrative fund budget. That is why they will never have the money to do the big jobs in their capital works plan.
KatherineB
you should not be concerned
Let me explain. You have identified that there is a loan to be repaid: you have identified that the Capital Works Fund is probably underfunded. You have identified that there is a risk that a future capital works bill may need extra funding.
You need to decide. If there is a big bill for repairs that comes in, am I in a position to be able to pay it?
It would be worse if you knew nothing of the above an walked in blind.
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