VIC: Q&A Setting Up a Maintenance Plan and Deciding on a Budget

These Q&As are about setting up a maintenance plan and deciding on a budget and other committee decisions in VIC.

Table of Contents:

• QUESTION: Is the OC Committee required to pass a special resolution to use the funds for something not in the 10 year maintenance plan?
• QUESTION: If we’ve had unplanned expenses, is it a good time to pull our forecast out again and have another look at it?
• QUESTION: Would an indication of a good healthy sinking fund balance be at least the amount of the annual operating budget?
• QUESTION: For a service like regular bin cleaning, what is the owners corporation’s decision making process? Are they authorised to impose the proposed service by majority vote?

Question: Is the OC Committee required to pass a special resolution to use the funds for something not in the 10 year maintenance plan?

We have a 10 year maintenance plan with expenditure according to the plan. Is it legal to use the plan to pay for NEW capital works that are not part of the plan? Does the OC committee need to pass a special resolution to use the funds for something not already included?

Answer: Consider the cost of the new asset and what approach might be suitable financially.

When considering the purpose of a maintenance plan and what funds can be used for, it is important to read through Sections 36 – 45 of the Owners Corporations Act 2006. This sets out the parameters in which the maintenance fund operates and how an owners corporation can use the accumulated funds to repair or replace major capital items.

If you are operating your maintenance fund in accordance with the approved and adopted plan, it is straightforward with respect to what you can and can’t use the funds for. Section 43 indicates you may use funds to pay for anything that is in accordance with the approved plan. Section 44 goes on to advise that if passed by a special resolution of the owners, funds may be used to pay for items that exist outside of the maintenance plan.

Section 45 talks about extraordinary payments from the fund, including scenarios where you might need to meet an insurance premium due or if immediate expenditure is necessary to avoid damage or loss to common property, etc.

In regard to passing a special resolution to act on Section 44, a committee does not hold the power to pass this. It must be put to all owners to consider and requires substantial support to proceed. Refer to Sections 96 and 97 of the Act, which detail the circumstances surrounding a special resolution.

Typically, when an owners corporation wishes to carry out new works (not listed in the plan), the funds are raised separately. This may be via a one-off special levy or built into the budget for the administration fund. Once the funds have been collected, works can proceed, and the item becomes a capital asset of the owners corporation. At this point, you can amend your maintenance plan to include the new asset and revise the numbers so that in future, repairs or replacements are taken care of inside the maintenance plan. Most owner corporations choose this method over attempting a special resolution (in accordance with Section 44) because the path to proceed is less onerous, and in essence, funds need to be raised from owners regardless. Taking funds from the existing maintenance fund accumulation now may leave you short later when you wish to address the maintenance of another asset.

Examples of new capital assets for buildings might be:

• the installation and implementation of EV charging stations or
• solar panels for the owners corporation power.

It’s worth considering the cost of the new asset and what approach might be suitable financially so you can ensure a sustainable environment for both the fund and the owners into the future.

Joel Chamberlain
Horizon Strata Management Group
E: joel.chamberlain@horizonstrata.com.au
P: 03 9687 7788

This post appears in Strata News #724

Question: If we’ve had unplanned expenses, is it a good time to pull our forecast out again and have another look at it?

If the costs of unplanned major works have escalated for some reason, how is the OC manager to know the specific requirements for accurately budgeting these expenses? If we’ve had unplanned expenses, is it a good time to pull our forecast out again and have another look at it?

Answer: It’s important to note the benefits of having the forecast regularly updated. Things will change over time and regular reviews of the forecast will improve the ongoing accuracy of the forecast.

If there are unplanned works like roof damage due to a storm, for example, it will impact future funds for other planned works. Similarly, if works have had to be brought forward for some reason it can have the same effect, particularly if the cost of a repair or upgrade is much greater than originally forecast.

It’s important to note the benefits of having the forecast regularly updated. Things will change over time and regular reviews of the forecast will improve the ongoing accuracy of the forecast.

The forecast may say, “we think the capital works fund levy should be $50,000 this year, but we know we spent money that was supposed to be spent in three years’ time. We had to spend that earlier because of some other event so we mightn’t need to budget for that in the future anymore, if it came in on budget”.

For medium and large size buildings, it’s a pretty small cost to get an expert in to update the forecast. I think that’s sometimes overlooked. We are usually talking about a few hundred dollars to get somebody in to update a report that’s going to make it a lot more accurate going forward, because it will take into account actual expenditures that have been incurred since the last forecast was done. I would highly recommend buildings do that.

Michael Ferrier
Eyeon Property Inspections
E: michael.ferrier@eyeon.com.au
P: 02 9260 5510

This post appears in the November 2022 edition of The VIC Strata Magazine.

Question: Would an indication of a good healthy sinking fund balance be at least the amount of the annual operating budget?

I’m interested in identifying what amount is a healthy balance for a sinking fund. Understand this is usually based upon future major maintenance capital plans spend. Would an indication of good health be at least the amount of the annual operating budget in a sinking fund balance?

Answer: The balance of the fund is predicated on what it needs to be spent on.

Kaylene Arkcoll, Leary & Partners

Unfortunately, there’s no simple check of your fund health other than properly preparing or reviewing your maintenance plan. What you need to have in your fund is completely dependent on what work your building needs done and where it is in the work cycle.

Be particularly careful if you’re still in the early developer control period. Developers set budgets and maintenance plans and often ‘under predict’ the extent of future works and their cost.

Tim Fuller, Strata Guardian

This makes perfect sense. I’m not surprise we’ve received this question from someone in Victoria since there hasn’t been a compulsion to have a maintenance plan up until the end of last year.

It makes perfect sense that the balance of the fund is predicated on what it needs to be spent on. Until you’ve got that in place and quantified, the balance of the fund is almost because otherwise you’re just putting money in a bucket for something in the future.

Kaylene Arkcoll
Leary & Partners
E: enquiries@leary.com.au
P: 1800 808 991

Tim Fuller
Strata Guardian
E: contact@strataguardian.com
P: 1300 482 736

This post appears in the July 2022 edition of The VIC Strata Magazine.

Question: For a service like regular bin cleaning, what is the owners corporation’s decision making process? Are they authorised to impose the proposed service by majority vote?

Concerning the committee’s decision-making process and spending limits for repairs and maintenance, what is the process for approval of items such as the regular cleaning of council provided bins? Does this type of decision require unanimous agreement from the members of the Owners Corporation in Victoria?

Decisions like the example provided impact our levies. Not all members of the Owners Corporation agree to the proposal because some do not consider that bin cleaning is of benefit.

Is the OC Committee authorised to impose the proposed service by majority vote?

Answer: These types of low cost services can be decided by an ordinary resolution.

No, the above service does not require an unanimous or special resolution (75%) to implement. This type of service is usually of low cost and can be decided by an ordinary resolution. Under the OC Act, the committee has been given the powers and functions to make fair and reasonable decisions on behalf of the OC. If the “regular” clean is say, twice annually, this can be arranged at committee level and hopefully absorbed by a contingency surplus within the budget without the need to raise a special levy.

When introducing new services or expenses, you will always have someone who does not agree with suggestions put forward by other members. If the above service is raised as an agenda item at an AGM and at least 50% of the owners corporation agree to introduce such services, then the resolution is passed and the few who disagree cannot influence the outcome. You can then consider adding the cost of this service to the annual budget if necessary.

Acting as “representatives” of the OC, the committee by majority vote has the authority and can decide to introduce a service (such as the above) without the need to consult the OC. Circumstances where a unanimous or special resolution is required is when more serious decisions are tabled or suggested, for example: changes to the plan of subdivision, undertaking major works or when funds of more than twice the annual budget need to be raised. Otherwise the committee has the permission (granted by the OC Act) to make these decisions, but always with a fair and reasonable approach.

Guy Garreffa
StrataPoint
E: guy@stratapoint.com.au
P: (03) 8726 9962

This post appears in Strata News #553

Have a question about setting up a maintenance plan or something to add to the article? Leave a comment below.

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