As apartment living becomes more common, so do body corporates, and their fees. If you’re a tenant in a managed property, you may be aware of the spending limits that your building has for maintenance and repairs. If you’re an owner, you’re probably very aware of how much money you regularly pay into your management fees.
What does a body corporate do?
A body corporate’s role is to manage shared areas within a building or residence. This might include shared areas such as the roof or corridors, but also things like pools or communal outdoor areas (including nature strips). They collect money from property owners within the facility and then use these funds to maintain these areas. They also often have a ‘sinking fund’, which is used for major, unforeseen repairs. If, for example, there’s a storm that comes through and damages the building, the body corporate can access these funds to pay for repairs.
As a note: the amounts and examples given in this blog are general statements only. Your body corporate may have a different structure or different limits/rules as to how money is authorised and allocated. If their charter or agreement specifies something other than what’s mentioned in this blog, then that document will be more accurate than the general advice given here. As always, it pays to read your paperwork carefully!
While the body management committee may have access to significant funds, there are strict rules as to how and when these funds can be used. Money managed by the committee (including the money that they don’t directly spend), is generally allocated one of two ways: for maintenance, or for building improvements.
Committee maintenance limits
Maintenance involves ensuring that the property, both the shared areas and the individual properties within the place managed by the body corporate, are kept to a standard. This includes regular maintenance such as ensuring that heating and cooling systems are being checked regularly by a professional, and also that preventative maintenance is undertaken. It can also include service costs like gardeners or pool cleaning. Building maintenance is typically handled by one of two people/bodies: the building’s caretaker, and the building’s committee.
However, it’s not a case of handing the money over and the body corporate taking it from there. Most charters will specify how much money can be spent without authorisation, and for what reasons.
The caretaker’s capacity
Most buildings have a caretaker whose responsibility it is to manage day-to-day repairs and maintenance. If a tenant has a problem that needs a plumber, for example, the caretaker will usually be their primary contact. That same caretaker may also organise smoke detector testing and replacement for the properties in the building. A caretaker will usually have a relatively small limit to work with (most likely $1000 or less) that they can spend without committee approval. This helps to reduce a lot of communication between the caretaker and the committee, as the former can then just report what has been done to the latter, rather than needing their approval prior to spending, and then confirming that the work has been undertaken.
The caretaker’s limit typically factors in not only what is a useful amount for the caretaker to spend without getting caught up or delayed in bureaucracy, but also how much autonomy the body corporate thinks that they should have.
Committee-led maintenance/general spending limits
While the caretaker will manage decisions and spending for issues that they are responsible for, the majority of other decisions will be made by the building’s committee. This committee is in place to manage the general needs of the people in the building. There are different amounts of money allocated for different tasks, which committee must manage.
The committee spending limit is the maximum amount the committee can agree to spend without external (i.e. owner) input. This amount is balanced between not giving the committee permission to spend vast sums of money unchecked, but also with letting them make decisions without needing owner input. The more people involved with a decision, the longer it takes to process, so committees need reasonable funds to be able to function effectively. Taking all of this into consideration, it’s usually enough money to enable them to handle general maintenance, day-to-day repairs, or minor projects. The default is usually $200 per lot (i.e. each property that’s managed).
Spending for improvements
Committee will also usually have a budget (typically per lot again) for improvements to the property. When is something an improvement and not maintenance? It might feel like semantics, but if something is broken or needs restoring as part of its function, then it’s maintenance. If something is being done to increase the value of the building, or something new is being built, it’s typically an improvement. For example, putting up sun shades for the pool would be an improvement, but replacing existing sun shades because they are old and no longer fit for purpose would be a maintenance cost.
Exceeding and changing the limits
If expenditure would exceed the given limits for maintenance or improvements, a vote must be passed at an AGM or special general meeting by a specified majority of owners for the work to be undertaken. If the owners do not vote for the work, then it cannot go ahead.
The committee’s limits can be changed at an AGM to any amount, depending on the needs of the building and the decision of the owners.
Each year at the body corporate’s AGM, spending limits should be discussed. They don’t need to be raised every year, but over time buying power goes down and needs change — imagine not having any spending in your budget for internet installation and maintenance!
Body corporates exist to make managing shared and communal spaces easier. While the committee structure usually means that a lot of paperwork and details are involved in every decision, it’s important to understand how the money can be spent. Hopefully this has given you some insight into the broad details of how management bodies handle spending. If you want more details for your specific body corporate, it might be worth sitting down with a coffee and spending an afternoon reading the paperwork. It will give you the knowledge you need to be a more engaged voice in your building’s running and maintenance.