A look at how the New Act affects an Owner Corporation and Strata Managers
It has now been some time since the commencement of the Strata Schemes Management Act 2015 (the Act) which took the place of the Strata Schemes Management Act 1996 (the Old Act), but I felt it was timely to discuss some changes that may not be well known to owners, to the extent they relate to the financial management of schemes.
Meticulous financial management is absolutely crucial when managing any strata scheme. It is impossible for the Owners Corporation to function or meet its commitments if the financials are not in order and there are no accurate records of how the money is being handled and spent.
While the Owners Corporation and Strata Managers are primarily responsible for the financial management of strata schemes, it is important that everyone involved should have an understanding of the Act and its requirements.
Some of the changes in the Act that are applicable to the financial management of Owners Corporations include:
• The ‘Sinking fund’ is now known as the ‘Capital Works Fund’.
• Permanent transfers of funds between administration and capital works fund is allowed. Temporary transfers (3 months) were possible under the provisions of the earlier Act, the new changes are useful where there are excess funds in one account, but a shortage in another.
• Any inconsistencies or miscalculations between the 10 year capital works plan versus estimates and associated reasons must be recorded. This was not required under the terms of the Old Act.
• Special levies can be raised directly to both administration and capital works fund. The Old Act restricted this to the administration fund.
• The Act requires owners corporations to give owners 30 days’ notice of levies falling due. Interest on overdue levies still commences 30 days after the due date.
• Irrespective of how big or small the strata scheme is (in terms of the number of lots), auditing the accounts is now a mandatory requirement should the annual budget exceed $250,000 (calculated by reference to the sum of balance of cash-on-hand and levies).
• Unpaid levies can now be recovered by entering an appropriate payment plan, for a period that is not longer than 12 months. This was not provided for in the Old Act. Interest still applies.
• During the first annual general meeting, the Owners Corporation must take into account the original maintenance schedule charted out by the initial owner. The Act stipulates that the original owner must furnish this schedule to the owners corporation.
• If discrepancies are found in the budget established during the initial period, action can be taken against the original owner.
• Detailed financial statements no longer need to be included in the AGM notice, although the Owners Corporation is required to submit a summary of the key financials.
• Proposed expenses that are more than $30,000 can be incurred only after obtaining a minimum of two quotations.
• All records have to be maintained for a period of seven years.
While the changes to the Old Act are generally minor and not too complicated, they have been introduced to protect Owners Corporations and the interest of owners generally.
Your Strata Manager should understand these changes so that Owners’ Corporations are compliant with the New Act. This is very much the basics of good strata management. For this reason, I never regret my background in accounting and its usefulness when it comes to the financial management of schemes we manage.
Of course, there is a whole lot more involved – tax, PAYG, BAS, etc. and owners certainly should not need a financial background to decipher accounts. In recognition of this, the new Act provides for a summary to be given in lieu of a full set of accounts, which is designed to simplify matters.
Notwithstanding this apparent improvement, I can’t think of any plan under our management that has opted for this in recognition (I would like to think) that the owners attending meetings are keen to fully understand where their money is going. In my opinion, such owner engagement is highly desirable; a summary is more likely to result in there being more questions than less, and a poorer understanding of the real state of affairs. A competent strata manager should be available to assist any owner having trouble negotiating the accounts.
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Contributing writer: Christa Anderson | Strata Manager | Beaumont Strata Management