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Topic
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A negative EOFY balance in the Admin fund is obviously due to unrealistic low levy and/or unforeseen maintenance expenditure.
Regardless of the cause, is there a legal requirement to transfer funds from a positive Capital Works balance to Admin to neutralise the negative amount when closing off the financial year? BTW, this is what our strata manager advised the SC.
If it is not a requirement, is it prudent anyway to neutralise the negative Admin account at the EOFY and if affirmative, is there a statutory position that the Admin fund must pay the amount back to the Capital Work fund within 3 months?
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I think you can transfer the funds but you must restore it back to the Capital works fund within a certain time limit.
I think you can transfer the funds but you must restore it back to the Capital works fund within a certain time limit.
Actually, all you have to do is make an arrangement within three months – that is, say you’re going to pay it back, rather than actually do it. Section 76 (2) of the NSW Act says this:
The owners corporation must, not later than 3 months after the transfer or use, determine the amount to be levied as a contribution to the fund from which the transfer or use was made to reimburse the amounts paid from the fund. Section 81 (3) and (5) apply to a contribution determined under this subsection.
In real terms, this allows for a lot of creative accounting including repaying and re-borrowing the amounts – entirely on paper – or agreeing a token levies increase for the following financial year.
This is common practise, but that doesn’t make it a good thing. Depleting the capital works (sinking) fund to compensate for a shortfall in the admin fund is a sure sign of bad financial management and poor planning. That money will be needed to maintain, replace or repair common property at some point.
All your committee is doing is shifting the cost of current wear and tear on to future owners. Prospective apartment purchasers should be aware of this kind of jiggery-pokery when they are buying into a block, especially if there’s a repeated pattern.
Not only does it mean financial pain down the road, it’s an indication that the committee and strata manager have been sailing close to the wind and who knows what other “compromises” have been made along the way.
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.
Can a buyer having done their strata search showing continuous negative balance in Admin due to SC/OC not rectifying the deficit (but proceeded with the purchase) at a later time take legal action against the OC?
Any “interested party” – owner or tenant – can take action at Fair Trading and NCAT at just about any time for just about anything.
As a new purchaser, you could wait until the next three-month deadline clicked over and then reasonably argue that you thought the discrepancy would be corrected. But then you would probably have to pay your share of the make-good levies too. You could try to calculate how much that special levy would be and have it taken off the purchase price before you bought.
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.
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