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If you’re a committee member or new owner it can be difficult getting your head around the various funds a body corporate holds. Here we explain the differences between the funds and whether or not you need them all.
The Unit Titles Act 2010 allows for your body corporate to have various funds: a capital improvement fund, a long-term maintenance fund and a contingency fund as well as an operating account for day-to-day expenditure. But what is the difference between these funds and are they all essential?
Firstly, all bodies corporate must establish and maintain an operating account. This account is for the purposes of meeting the expenses of the body corporate including management expenses, property services and amenities, compliance costs and maintenance costs.
Long-Term Maintenance Fund / Reserve Fund
Most bodies corporate will have a ‘Reserve Fund’ or long-term maintenance fund. The long-term maintenance fund is a fund established by the body corporate, which is contributed to by the owners of principal units and used for payment of costs incurred in the long-term maintenance plan for the property. This fund may only be utilised for maintenance identified in the long-term maintenance plan, unless otherwise resolved by special resolution by the owners at a general meeting. The decision to not have a long term maintenance fund must be made by special resolution at a general meeting of the body corporate – that is, 75% of those present and eligible to vote must vote in favour of the resolution for it to pass. Note, a body corporate must have a long term maintenance plan; however, the body corporate can opt out by special resolution of having a fund to match the plan. Crockers don’t recommend that course of action – building up the funds over time is a much better way of funding ‘chunky’ capital items than the one off shock of special levies when the time comes to do the work. If you’re buying a unit in a body corporate, it’s a really good idea to look at the long term maintenance plan and check that there is a corresponding long term maintenance fund.
Your body corporate may also choose to have one or more contingency funds to cover unbudgeted expenditure. The contingency fund is an optional fund. It’s a good idea to have some money in your contingency fund to cover unexpected expenses that aren’t covered in either your ‘business as usual’ operating fund or the long term maintenance fund. It’s a good idea to slowly build up a bit of money in the contingency fund to cover unexpected large expenses such as repairs to a burst water main, a significant electrical fault or an unexpected increase in an item in the operating budget. It’s not compulsory to have one. A body corporate can decide by ordinary resolution to have a contingency fund, and doesn’t need to pass a resolution to not have one.
Capital Improvement Fund
A capital improvement fund is for spending that adds value to, or upgrades the common property. It could be used for spending that is not provided for in the long-term maintenance plan. This might include a fence around the complex, new landscaping, a new security system or other improvements that the body corporate may wish to implement in the future. It isn’t compulsory to have one – it’s something that the body corporate can choose, or not choose, to do. Deciding to have one is just an ordinary resolution of the body corporate. Again, as it’s optional, you also don’t need to pass a special resolution to choose not to have a capital improvement fund.
Some unit titled properties are in the unfortunate position of needing to remedy significant defects in their buildings. It’s often useful for those complexes to keep the ‘business as usual’ activity distinct from the costs of remedying building defects, and the body corporate may elect to run a ‘remedial fund’. The processes around a remedial project are quite specific and outside of the scope of this article.
If you would like to find out more about body corporate funds or want to know how to get the essentials from your financial accounts, contact our Body Corp Community Living experts on 09 968 3311 or email firstname.lastname@example.org.