Money, control and value-Part 1, By Tim Sheehan.
Let me start by saying that spending money is not one of my favourite activities. I especially dislike receiving my monthly credit card bill. If you are anything like me, it makes you especially cranky to spend money when you do not know where the money is going (knowledge), you feel you have not played a part in making the decisions on how the money is being spent (control), or you feel you have not received a fair return for the money which has been spent (value).
Unfortunately the three causes of cranky (knowledge, control and value) can exist in the body corporate environment when it comes to the body corporate levies which owners receive.
In coming editions, we will write about each of the three aspects which can cause that cranky feeling, as each of them contain relevant information which may provide apartment owners with a better understanding of the finances of their body corporate. We hope having this background information will make a positive difference in the way you may feel about paying your body corporate levies.
Unfortunately it still happens that somebody can buy an apartment and be unaware that with each apartment comes an obligation to contribute to the common funds of the body corporate. Taking phone calls from individuals who get a body corporate levy notice for the first time is one of the frequent responsibilities of our SSKB Client Care Team. These are not easy phone calls. To somebody who has been involved in bodies corporate before it makes sense that the body corporate will need money to pay its bills. However, for new buyers, this reality may be overlooked in the excitement of making a new purchase.
However, it is a necessary fact of body corporate life that periodically the body corporate sends out invoices (called levies or contributions or fee notices) to all its owners so that it has sufficient funds in its bank account to pay the necessary expenses of the body corporate when they arise.
The amount of each owners invoice is that owners proportional share of the body corporate budget, based on the “entitlements” of the apartment.
The invoices contain at least two and possibly three parts: The administrative fund portion, the sinking fund portion and possibly the insurance fund portion. Each of the three parts have line items in the financial statements of the categories of expense. Types of expense are as varied as the types of property but typically they include; paying for cleaning of the common property, maintaining the gardens, paying the on site caretaker, insurance of the common property buildings, public liability insurance, repainting the interior common property and the exterior of the building, income tax, administration of the affairs of the entity, electricity, replacing important and essential common property plant and equipment like roller doors, elevators, pumps and air-conditioning machinery. See ‘Where does the money go?’ by Paul Wood for a more detailed analysis.
The body corporate levies are set on the basis of the body corporate budget. Your body corporate budget is set by your committee. The committee is a group of owners like you who volunteer their time to make decisions on behalf of all owners. These individuals can often spend large amounts of their personal time involved with the body corporate. Each owner has to pay the expenses, so the people putting together the body corporate budget are all “chipping in their share”.
Moreover, once the budget is set by the committee, it goes to all owners at the annual general meeting who then vote by ordinary resolution as to whether they accept the committee’s budget.
The owners receive invoices set in accordance with the budget only after the budget is agreed to by ordinary resolution at the annual general meeting. When the money is received, it is put into a bank account in the name of the body corporate. At SSKB we know these are the owners funds, and money is only distributed from this account in accordance with the instructions and approval of the owners on the committee.
The process of setting the budget is always transparent. The budget is usually constructed having reference to the prior year spending patterns, a thorough knowledge of the history of the body corporate and the status of the construction and maintenance of the common property by all the owners on the committee, the on-site caretaker, and SSKB: all of whom bring considerable experience and expertise to bear. In addition to this experience, estimates of the cost of many line items in the budget are regularly tested by the parties obtaining several quotations for the underlying work.
The budget process can often be arduous but it invariably delivers a result which is indicative of the real costs at the best possible price. While prices may go up, the expenditure is value for money.
I hope you have a feel for what we are trying to achieve over the series of articles about your body corporate levies. If you are anything like me you might not enjoy paying your contributions. However, you can be assured the amount is fair, has been determined through an appropriate process and that your fellow owners – the committee – and the team at SSKB are doing their best and are delivering value to owners.