Financial Management
Sound financial management is required to manage a strata titles scheme in order to respond to day to day
administrative costs and larger amounts of expenditure. It is important that the strata company identifies its costs and
expenses, properly budgets for them and levies contributions appropriately for them.
This includes having a proper understanding of the common property and personal property of the scheme, and the
strata company’s obligations under the Act.
See sections 77, 127-134 of the Act
See section 128 of the Act
See sections 100 to 102 of the Act
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Typical scheme expenses requiring management might include:
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paying for the required insurance of the scheme’s insurable assets
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replacing and installing a lift
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installing security equipment and facilities for the disabled
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fees payable to a strata manager and other suppliers of services and amenities to the strata company (for example, facilities manager, gardener, handyman)
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costs of acquiring and maintaining record-keeping systems and other computer hardware and software
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costs of recovering unpaid levies and other debts owed to the strata company
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costs of taking legal proceedings in SAT and the courts.
Contributions
See section 100 of the Act
The strata company’s obligation to establish an administrative fund, determine amounts to be raised for the fund, levying contributions for the administrative fund and (if it is a designated strata company) the establishment of the reserve fund, must be performed by the strata company in accordance with resolutions passed by the strata company.
The exception to this is where scheme by-laws have empowered the strata council to make these decisions.
Any contribution levied:
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becomes due and payable to the strata company in accordance with the terms of the decision to make the levy; and
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if not paid when due, bears interest on the amount unpaid at the rate of simple interest of 11 per cent, unless the company determines an unpaid contribution bears no interest or interest at a lesser rate; and
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including interest accrued, may be recovered as a debt by the strata company in a court of competent jurisdiction and the strata company may agree to a compromise of such a debt.
Statement of accounts and budget
See sections 101 and 102 of the Act and regulations 59, 60 and 61
A strata company must keep proper accounting records of its income and expenditure. The strata company must prepare a statement of accounts for each financial year, showing its assets, liabilities, income and expenditure.
This requirement does not apply to two-lot schemes. It may not apply in three to five-lot schemes, if a scheme by-law has been passed to this effect.
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See section 100 of the Act
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See sections 101 and 102 of the Act
Administrative Fund
See section 100 of the Act
A strata company must:
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establish a fund for administrative expenses they deem sufficient for the control and management of the common property, for the payment of any insurance premiums and the discharge of any other obligation
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determine the amounts to be raised for payment into the administrative fund
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levy contributions on owners of lots
- in proportion to the unit entitlements of their respective lot
- in accordance with any scheme by-laws that provide for a different basis for levying a contribution
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recover from an owner (by action in a court if necessary) any sum of money expended by the company for repairs or work done by it or at its direction or order made, under a written law in respect of the lot.
Reserve Fund
See section 100 of the Act and regulations 77
A strata company for a scheme which has 10 or more lots or a building replacement value of more than $5,000,000 (called a designated strata company) must:
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establish a reserve fund for the purpose of accumulating funds to meet contingent expenses and other major expenses of the strata company likely to arise in the future
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determine the amounts to be raised for payment into the reserve fund and levy contributions on the owners in proportion to their unit entitlements. Note there is no provision in the Act for the scheme by-laws to set a different method of levying contributions for the reserve fund
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prepare a 10-year plan setting out the maintenance, repairs and renewal or replacement of common property and the personal property of the strata company likely to be needed over the next 10 years, along with the estimated cost.
Strata companies that are not designated strata companies may choose to have a reserve fund or a 10-year plan for
their scheme, but they are not required to. The Act does not provide for how much should be in a reserve fund and there is no requirement that the costs estimated in the 10-year plan match the amounts in the reserve fund.
Budget
A strata company must prepare a budget for each financial year and submit it for approval to its AGM. The budget must be prepared taking into account, if applicable, the 10-year plan for the reserve fund and in accordance with any requirements set out in the scheme by-laws. The strata company may, by ordinary resolution at its AGM or at a subsequent general meeting, approve a budget with or without modification. Strata companies have a duty to keep the common property in good and serviceable repair. This may mean renewing and replacing it and doing so whether the damage arises from fair wear and tear, inherent defect or any other cause.
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The money put aside in the budget for keeping the common property in good repair is not subject to any specific expenditure controls. If the strata company agrees to budget for repairs, maintenance and replacement of the common property, they can do so by the ordinary resolution, which is required to agree to the budget.
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Strata companies have the power to improve or alter common property in a way that goes beyond the maintenance, renewal or replacement needed to keep it in good and serviceable repair. For example, lot owners might want to convert a disused storage room into a bathroom. A change of this nature is subject to expenditure controls.
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If the strata company wants to make changes to the common property that goes beyond required maintenance and repair (other than sustainability infrastructure), the strata company can include the items in its budget for approval by ordinary resolution provided the amount does not exceed $500 times the number of lots in the scheme.
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If the strata company wants to spend more than the budget, a special resolution of the strata company is required to approve the budget.
Notice of the proposed special resolution should contain:
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a description of the proposed improvement or alteration, with:
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particulars of what is proposed in terms of design and materials
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the proposed timeframe for completion
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particulars of the estimated cost of the work necessary for completion
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a drawing showing the location of the improvements or alterations
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at least one quotation or tender obtained by the strata company for the work necessary to complete the proposed improvement or alteration.
The strata company can spend money not authorised by an approved budget but authorised by special resolution. If there is no special resolution, an amount not exceeding $500 per lot in a financial year.
There is also a special procedure to get approval for expenditure under section 102(6)(b)). To get this approval, a strata company must give:
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written notice of the purpose and amount of the proposed expenditure to all owners and first mortgagees
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particulars of at least two separate quotations or tenders obtained by the strata company in relation to the proposed expenditure.
If this process is followed, the expenditure is approved unless, within 14 days, written objections are received from the owners or first mortgagees of either:
25 per cent or more of the lots, or
lots of which the total unit entitlements are 25 per cent or more of the sum of the unit entitlements of all the lots in the scheme.
The strata company can also spend money not authorised in the budget if required by a court or tribunal or by a notice or order under a written law.
Scheme by-laws may require expenditure of a particular class to be approved by a unanimous resolution, resolution without dissent or special resolution. It is recommended you check the scheme by-laws to see if there are any special rules about strata company expenditure.
10-year Maintenance Plan
In a high-rise building, the lift may need replacing at some point, there may be new emergency requirements to meet, the external walls may need to be painted or rendered. In a survey-strata scheme the private road may need resurfacing or a shared swimming pool on common property may need to be re-tiled.
These examples and many more provide sound reasons for having a 10-year plan identifying items of common property and personal property of the strata company that may need to be replaced over time. This is not about improving or altering the common property.
This is about the strata company properly managing its obligation to keep the common property in good and serviceable repair. This includes, properly maintaining it and replacing and renewing as appropriate for the benefit of owners for the time being.
The 10-year plan must include the following information:
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the name of the strata company and the address of the scheme
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the name, address and if engaged by the strata company, the qualifications of the person or persons who prepared the plan
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the period covered by the plan
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an itemised list of common property, and personal property of the strata company (covered items), that it anticipates will require maintenance, repair, renewal or replacement in the period covered by the plan
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a condition report about the condition and anticipated maintenance, repair, renewal or replacement requirements of the covered items in the period covered by the plan
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the method by which the estimated costs for the maintenance, repair, renewal or replacement of the covered items were determined, including assumptions underlying that determination
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a plan or recommendation for the funding of the estimated costs for the maintenance, repairs, renewal or replacement of the covered items
The list of covered items must include any items of value that form part of the common property or the personal property of the strata company which, in the opinion of the strata company, should be included in the plan. The plan must show due regard for the maintenance, repair, renewal or replacement likely to be required in the period covered by the plan.
The following are items of value may be included in the plan:
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roofs and gutters
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walls (including retaining walls), floors and
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ceilings
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windows, eaves, flashings, soffits and
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windowsills
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downpipes
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foundations of buildings
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driveways and footpaths
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steps, stairs and stair railings
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doors and doorways (including fire doors)
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lighting
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storage or plant rooms
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fencing and gates
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balconies, railings and balustrades
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lifts
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ventilation
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fire services, fire alarms and fire hoses
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air conditioning systems
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building and ancillary structures
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utility conduits and services
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garbage disposal
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hot water systems and electrical systems
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post boxes
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security components
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swimming pools, spas and pumps or filters
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water bores and water tanks
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back flow devices and pumping devices
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car stackers
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roof access safety equipment
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solar and other sustainability infrastructure
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disability access facilities
This list is not exclusive, so if the strata company has other items of value that form part of the common property or personal property (for example, motor vehicles, computer hardware and software packages) they should be included too:
A condition report must include the following information about a covered item, having regard to the design, age and overall condition of the scheme:
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the date of installation, construction or acquisition (if known)
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the present condition or operating state (including whether working or not)
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the date on which an inspection was last undertaken
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details of any maintenance, repair, renewal or replacement that is anticipated to be required in the period of the plan
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estimated date or dates for maintenance, repair, renewal or replacement is likely to be required in the period of the plan
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details of the estimated cost of maintenance, repair, renewal or replacement
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the estimated lifespan of the covered item or items once maintained, repaired, renewed or replaced.
A strata company’s first 10-year plan must be submitted for approval at the first AGM that occurs more than 12 months after 1 May 2020.
The plan must be revised at least every five years, and when revised must cover the next 10 years. The 10-year plan may guide the strata company in deciding how much money they need to set aside in the reserve fund each year to meet an anticipated expense.