Tagged: Capital Works
August 26, 2020 at 11:25 am #235857StrataSaintsMember
Hi Amanda and Fellow Members
I’m curious as to whether there are any SSMA rules regarding a capital works fund that has gone into negative.
I recently reviewed our strata finances online and realised that our capital works fund has gone into negative. It would appear that this has happened just before our 1st August levies were due. It would seem that we are now relying on these August levies to put the capital works back into positive however only 30% of our strata fees are put towards our capital fund. This means that we are very much unlikely to be holding more than $5k in for capital works, of which some of the budgeted capital works do not look like they have been completed as per we planned for the financial year.
My questions are:
1. Is there anything that requires us to hold a positive capital works fund?
2. If the committee are approving money to be spent which does not align to what the owners corporation voted on at the AGM would it be reasonable to ask that at least those responsible are removed?
3. Does a negative capital works fund (or very small fund) mean we are insolvent and open to liability?
4. If a special levy is then requested by the Committee at the next AGM in Nov because of the overspend, is there anything we can do as owners to remove the committee or argue they have not spend money as per the direction of the Owners corporation?
I’m very concerned that if something now goes wrong we are going to face significant incremental costs either by increasing our levies (which we never get the reduction back) or we are going to be up for significant special levy due to committee members approving spend which was not budgeted for and without consultation of owners who may have then had a choice to raise a special levy rather than deplete the entire amount with now no safety guide until the next AGM.
What a mess!
Strata SaintsSeptember 1, 2020 at 10:00 pm #236580Amanda FarmerExpert
Perhaps surprisingly, it’s not uncommon (at least in my experience) to see a capital works fund in the red.
My answers to your questions:
1. No. Unlike a corporation that is subject to the Corporations Act, owners corporations are not required to be ‘solvent’. Bear in mind that there is money in the bank somewhere, it is just allocated against admin rather than capital works. Note section 76 SSMA may be relevant.
2. That’s a big question. I’d need to understand the reason/s why money has been spent on un-budgeted items. Have urgent items come up or has the committee actually been irresponsible with the funds?
4. Hard to say. See 2 above.
Increasing levies, or having to strike special levies, to meet regular maintenance costs because of lack of foresight, poor or non existent planning is (sadly) a common problem, particularly with buildings of a certain age. That’s why our NSW legislation requires 10 year capital works fund plans. But with no penalty for non-compliance with the plan, they have little impact.
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