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QLD: Q&A Body Corporate Spending Without Required Approvals

The LookUpStrata Team
expenditure

Lot owners from QLD are wondering about body corporate spending.

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Question: Can the body corporate spend money on gifts or throwing a party?

Last Christmas, the body corporate bought gifts for the strata manager and the caretaker. Recently, our chair held a farewell party for the caretaker. Food and drinks were supplied for approximately 45 guests for three hours.

The members decided to reimburse the chair at a subsequent committee meeting.

Without disclosing the cost of the party, can the committee vote to reimburse the amount spent on the party after the event and without advertising the motion to owners?

Answer: While social cohesion in a community titles scheme is a laudable goal, spending money on Christmas parties, and by extension, other parties, is not a valid use of lot owners contributions.

‘Nothing is easier than spending public money. It does not appear to belong to anybody. The temptation is overwhelming to bestow it on somebody.’ Calvin Coolidge, 30th President of the United States of America.

Bodies corporate are creatures of statute and have only the powers granted to them by those statutes. Under the Body Corporate and Community Management Act 1997, there is no general power of taxation, or for that matter, general power to spend. The legislative schema is to establish bodies corporate to fulfil stated purposes, empower them to fulfil those purposes, grant them authority to raise necessary funds through budgeting and contributions (levies), and then to spend those (lot owners) funds by following stated processes.

When answering the question ‘can the body corporate lawfully spend money on X?’, a good place to start is to see if ‘X’ is, or relates to, a stated function or power of the body corporate. For example, there is no doubt that a body corporate can raise and spend money on common property maintenance. The issue, of course, is when, after having looked for ‘X’ everywhere in the legislation, you cannot find it. There may be something similar, but you are not sure. Take the issue of a body corporate that objects to a proposed new development next door that will block views and erode occupier’s amenities. The body corporate can make an objection, and bring a ‘submitters appeal’ against the development approval, but cannot do the same thing indirectly, by donating to a GoFundMe campaign to fund another submitter bringing an appeal (contrast Quay Terraces [2016] QBCCMCmr 91 with Paradise Palms Country Club – The Keys [2022] QBCCMCmr 130). Why? In the former case, there is a statutory head of power for the body corporate to bring proceedings, and therefore, it must be able to spend money for the purpose of those proceedings. In the latter case, there is no statutory head of power to make donations to the cost of proceedings under someone else’s control.

If you cannot find ‘X’ or something similar, then odds are, body corporate funds cannot be spent on it, no matter how it may seem beneficial to the body corporate or lot owners and occupiers. In this vein, while social cohesion in a community titles scheme is a laudable goal, spending money on Christmas parties, and by extension other parties, is not a valid use of lot owners contributions; see Kensington Gardens Retirement Village [2005] QBCCMCmr 269 (20 May 2005). As for the matter of gifts, where the statutory function or power is missing, it does not matter whether there is some collective interest of lot owners in making such a gift. The gift or donation will be unlawful. For example, if a community titles scheme is used for beachside holiday letting, with the bonus of a patrolled beach in front of the complex, lot owner’s contributions cannot be donated (i.e. gifted) to that surf living saving club; see Edgecliffe Apartments [2021] QBCCMCmr 30 (20 January 2021). Disclosure of the spending decisions, in this case, simply follows the normal rules; minutes of general or committee meetings (or votes outside committee) must be distributed to lot owners. As with any body corporate decision, a decision to spend on gifts or a party can be overturned by a subsequent body corporate decision of the same or ‘higher’ type, and an Adjudicator can, on an application made within the 3 month time limit, overturn unlawful decisions.

Michael Kleinschmidt Bugden Allen E: michael.kleinschmidt@bagl.com.au P: 07 5406 1280

This post appears in Strata News #723.

Question: The committee received approval for $35k expenditure on a project. Without approval, the chairperson has added extra components to the project now expected to cost over $50k. Is this legal?

The committee received approval from lot owners at an EGM for expenditure on a project of $35k. Not only have the costs on the original project scope increased but without consultation, the chairperson has added extra components to the project so that it is now expected to cost over $50k. Work has proceeded and been approved retrospectively by a majority of the committee. Is this legal?

Answer: The retrospective approval can be legal.

The retrospective approval can be legal. Whether you are happy about being asked to grant it is another question and what might happen if you don’t is another one still.

Of course, in the ideal world the project would have proceeded as originally planned or any variations would have been voted on. It is reasonable to ask why this didn’t happen. Possibly there is a good explanation. I can have some sympathy with Committees trying to organise major works in the current climate – costs are changing quickly and availability of contractors is tight. It is often necessary to make quick decisions around which it is difficult to accommodate the stately times of legislated body corporate decision making. This doesn’t mean that Committees have carte blanche to just change projects and add costs, but if they can demonstrate that they have been making reasonable decisions it isn’t necessarily a bad thing for them to have been reactive to a developing situation. As a minimum, I would suggest that any retrospective approval also include a frank explanation as to why that approval is required.

Then, it is up to you as an individual to decide if you are happy with that. If you and a majority of other owners vote yes the matter can end there.

If you are unhappy or owners vote no, the next steps are much more uncertain. You can’t undo the works, but you might move to change or replace the committee so that a more responsible group is installed.

You might also consider whether your insurance could come into play – the Committee have acted outside of their authority, so perhaps there is a loss that has been experienced by the body corporate that could be covered by the office bearers liability. However, pursuing this line could be a dangerous game as the insurer could have many questions about how this happened and there is likely to be a future impact on premiums and your capacity to arrange insurance.

If other owners were happy with the works done, but individually you weren’t, you could take the matter to the Commissioner’s office to see if anything can be done. Again, they can’t undo the works, but they might reprimand the Committee and that might trigger a change in personnel if that is what you were after.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #620.

Question: Our complex is coming up to the end of the warranty period. The committee has employed a building inspector to compile a list of defects. Can the committee make this decision without approval for the spending?

Our complex is nearing the end of the 6 year, 6 month builders warranty period with the construction company and our BCC has employed a building inspector to inspect all 120 units. This will allow the BCC to present all building defects to the builder for rectification. The BCC have also employed a lawyer to represent all owners if the matter goes before the QBCC for adjudication.

The cost so far for this task is in the vicinity of $24,000 and the BCC, without consultation or approval from all owners, is paying for the services from the sinking fund. They intend to increase sinking fund contributions at the next AGM to raise the funds to pay for the project.

Can the sinking fund be used for this purpose?

Can the BCC expend this amount without approval?

Answer: The question is whether it is better to act outside the boundaries of the legislation to secure the rights of the body corporate or to adhere strictly to the legislation and let the warranty period pass?

Unfortunately, body corporate timelines for decision making don’t always match the timeline for other parts of the industry and sometimes an executive decision has to be made – the responsibility for this falls on the Committee.

The defect timelines often cause issues for body corporates as, while there is an extended period for body corporates to take action, in reality it also takes a long time for owners to organise the necessary funds and information to make a filing against the builder or developer. Many schemes are not really aware of the rules or don’t think about them too much until the deadline approaches – this isn’t necessarily bad management so much as it is human nature. Faced with the hard deadline of the warranty period, Committees find themselves in the position of needing to take action without having the time to seek proper approval.

The question then is whether it is better to act outside the boundaries of the legislation to secure the rights of the body corporate or to adhere strictly to the legislation and let the warranty period pass? There is probably no fixed answer to this as the decision may well depend on the strength of the case and the quantum of the defects, but many body corporates will opt to do as your site seems to have done which is take action first. Once that decision is made, the Committee can seek after the fact ratification of the decision. It’s not ideal, but neither is the construction industry, or apparently the construction of your building, and sometimes needs must.

If you object to that, then that is your right. I’d start by asking some questions to the Committee about the decision making process that has taken place and why action wasn’t taken earlier. If the Committee was acting in earnest in trying to secure the best outcome for the body corporate, they should be happy to discuss their rationale. Maybe you could volunteer to be part of the committee to assist with the decision-making at the scheme moving forward. If you think the choices of the Committee were egregiously incorrect, then you could look at the possibility of having committee members replaced or seeking some limitation over the commitment of any further costs. Whatever the situation, make sure you get as much information as possible in advance so that you can decide your response from a position of understanding.

It’s also worth noting that depending on the spending limits at your site, it is possible the decision was within the cost limit of the committee. You might want to check this with your body corporate manager – $24,000 would be the standard limit for a 120 lot complex. As for which fund the money should come from – most typically, legal costs are paid from the admin fund. I think it is reasonable to ask the rationale for taking the money from the sinking fund. You could put this question to the Committee, the body corporate accountant or the scheme’s auditor if you have one.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in the June 2022 edition of The QLD Strata Magazine.

Question: After many years of committee spending on personal pet projects, the tide has turned. Can we recoup the spent dollars or are we better moving on?

After many years of trying to halt our committee spending body corporate funds on personal pet projects ranging from the making of donations to political causes, even down to paying a committee members phone bill.

The balance of power has now finally changed in our committee. Can we recoup any of the funds that have been miss-spent in the past? Is it worth the effort and obvious pain and anguish to chase these funds from the recipients? Or, would it be better to just cut our losses and just look to a brighter future?

Answer: Short answer: no. It is not worth it and yes, you should absolutely look to start a new chapter.

I’ll give you the short answer, and the long answer.

Short answer: no. It is not worth it and yes, you should absolutely look to start a new chapter (or whatever other euphemism you’d care to use).

Longer answer: with every strata problem there is a corresponding set of solutions. This one is no different and you can go down the path of gathering the necessary evidence, seeking legal advice and initiate proceedings against the individual in question. You may like to do a cost-benefit analysis: for the amount of money you are supposedly chasing, how much will you spend recovering it and how long might that take? You may also like to think about whether other owners might have an expectation of the committee to do so (or not do so). Then make a decision, as a committee, as you might any other matter.

Again, though, I point you back to my short answer…

Chris Irons Strata Solve E: This post appears in Strata News #538.

Question: Can our Body Corporate pay for quarterly drinks and a Christmas party?

Answer: No. Body Corporate funds are raised in order to administer the common property and assets of the body corporate, enforce the scheme’s by-laws and to accommodate for items included in the annual budgets.

No. Body Corporate funds are raised in order to administer the common property and assets of the body corporate, enforce the scheme’s by-laws and to accommodate for items included in the annual budgets.

It has been consistently held that the Body Corporate is not permitted to use Body Corporate funds outside of these purposes, for example, social events. An adjudicator has relevantly stated:

“…a body corporate cannot use its funds for a social event such as a Christmas party even though the event may be a popular idea, proffer many benefits for owners and occupiers, foster improved relations between owners, assist to heighten community harmony and may deter a potential dispute.[4]”

While the Body Corporate cannot fund social events of this nature, this does not prevent the events occurring where the money is raised by the owners or occupiers who have chosen to attend.

Peter Hunt Mathews Hunt Legal E: peter.hunt@mathewshuntlegal.com.au

This post appears in the November 2020 edition of The QLD Strata Magazine and Strata News #530.

Question: Our Body Corporate Committee claims reimbursements for body corporate spending directly from the Body Corporate Manager. Are the expenses valid and have the committee members been following correct approval process?

Our Body Corporate committee does not attend formal committee meetings but holds meetings via online platforms. However, they repeatedly claim out of pocket expenses in relation to these meetings. As well as expenses for software, they also claim fax and phone expenses.

The claimed the expenses directly through the Body Corporate Manager. Unfortunately, any approval of the owners have not been at general meetings in previous years.

I’d like to know if the expenses are valid, and are if so if they are following the correct procedure for approval and reimbursement.

Answer: Any of the claimed costs actually need to be incurred and it needs to be related to attending the meeting.

Committee member expenses need general meeting approval unless it is reimbursement of expenses in attending a meeting of no more than:

This is reimbursement though, so that means any of the claimed costs actually need to be incurred and it needs to be related to attending the meeting.

Perhaps the first step is to write to the committee asking them to justify it fits within these parameters.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #242.

Question: A casual conversation between lot owners has been taken as approval to carry out improvements although the required body corporate spending process was not adhered to. Costs have blown out. Who is responsible for the overspend?

I am part of a 7 lot Standard Regulation Module.

Our body corporate comprises a 2 gate entry 7 acreage lot property with about 1000 meters of combined common property bitumen road, lights and 2 security gate access.

One of our lot owner neighbours wanted to improve/upgrade the lights which had not been working for years.

At a community BBQ a couple of years ago they showed some printed copies of a web page with some pictures of sample lights as we were about to leave. I think general comments were they looked OK and interesting, especially as 7 individual light posts cost $225 each and light bollards cost $30 each. We thought that it would be a simple job to just replace the existing broken lights with new ones and fix any associated electrical connections.

From that point on two of the lot owners seemed to take that as an approval to go ahead with the improvement.

There was no committee meeting or minutes to approve.

We saw no quotes to do the job and there was no formal committee meeting to discuss the details of the proposal. One of the two lot owners is a landscaper who was doing the earthworks etc and employed an electrical company he used in his business which I personally think is a conflict of interest.

Since the job has been done we still do not have any working light system except for 3 bunker lights on 1 entry gate that are lit all night long.

We do not have any working lights on our side.

The main concern that I have is that this project has ballooned out to over $11000 from an initial cost of parts being $1575.

I feel the community was duped by these 2 lot owners who have left us in a precarious financial situation where we are no better off than before they started this mess.

Our common property roads are a much higher and very much more costly priority and our funds should be accumulating to address the maintenance of these roads which is looming on the horizon.

Do we have any redress in this matter and are there any avenues for the body corporate community to get any compensation. I believe this has been gross financial mismanagement of the communities funds.

Answer: Any concerned owners should seek to be put on the committee so that any future decisions can be managed with their input.

It would be very difficult to sheet those costs home to the individual committee members and it is probably going to be something that the body corporate bears the costs of. That being said, any decisions should be authorised by the body corporate so what should happen is that all the decisions and spending is sought to be confirmed at a general meeting.

Any concerned owners should seek to be put on the committee so that any future decisions can be managed with their input (of lack of decisions stopped).

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #230.

Question: Our body corporate is considering buying a defibrillator in case any of the owners, guests etc have a heart attack. Is this appropriate body corporate spending?

Our body corporate is considering buying a defibrillator in case any of the owners, guests etc have a heart attack.

Putting aside the question of how much it costs, who is going to use it, professional indemnity insurance for ‘Good Samaritan’ conduct, etc, is this appropriate body corporate spending … or is it just a more sophisticated type of Emergency First Aid material required for any workplace?

Answer: In theory, there is no reason why a body corporate couldn’t have as many lifesaving devices around the complex as it wanted to.

In theory, there is no reason why a body corporate couldn’t have as many lifesaving devices around the complex as it wanted to. It could even go and get Baywatch style towers, floaters and the like if it felt like it.

The only issue on my end would be the qualifications / training to use them. If there is a defibrillator on the wall the minimum that should be beside it is a warning about being trained to use it or some very clear instructions on how to do it. I don’t know how hard one is to use, and Google would probably help, but if someone is having a heart attack in front of you, there probably isn’t the time to ask Siri and take it all in. then there is the issue of whether it is the right time to use it and whether the person on the receiving end has some condition or implant which might mean they should not be used.

Imagine if it was used on someone who didn’t need it or could not survive the use of it (if that condition exists)?

I think asking a trained paramedic and then the body corporate’s insurer would be the place to start about whether one should be ‘freely’ available to all and sundry.

Frank Higginson Hynes Legal E: frank.higginson@hyneslegal.com.au P: 07 3193 0500

This post appears in Strata News #178.

What is your experience with body corporate spending in your scheme? Are the required approvals adhered to? Have a question or something to add to the article? Leave a comment below.

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