A body corporate is a creature of statute. That means that it can only do what legislation allows it to do.
In recent times we have been engaged by both bodies corporate and disaffected owners to advise on matters where body corporate spending has allegedly gotten out of control.
These circumstances giving rise to this increased spending have included:
- renovations and repairs of common property;
- engagement of lawyers for initiating legal disputes;
- engagement of third party contractors; and
- ‘project’ work where items were individually itemised.
There are good reasons for the existence of these spending limits, such as:
- it ensures that the committee can not spend significant amounts of body corporate funds on a project that lot owners may not want;
- the committee is obliged to obtain a number of competitive and comparable quotes for the proposed spending to ensure lot owners are receiving a fair price for the goods and/or services; and
- it prevents lot owners from being surprised by a large special levy intended to meet the short fall created from a large and unbudgeted committee expense.
Each individual matter had its own particular circumstances, but there are some golden rules when it comes to committee spending:
- Know that there are spending limits.
- Understand those spending limits. It is reasonably safe to say that any commitment to spending at committee level above $10,000 (short of there being a prior general meeting resolution to the contrary) will require two quotes and quite possibly general meeting approval.
- If you are not sure, seek confirmation at the general meeting of the spending.
- Do not try to sneak through the system by characterising individual items as spending to avoid them being ‘lumped’ together as a project.
Committees need to remain aware that there are statutory obligations to strike special levies when they have incurred expenditure above what the body corporate has budgeted for.
Body corporate managers need to remain aware that their advice to committees on issues of this nature is very important. A committee can always go against that advice, but it is imperative that the body corporate records show that the advice was actually given.