In recent articles, we have discussed the roles of sinking funds and administrative funds in strata communities. A sinking fund is effectively a deposit which exists to allow an Owners Corporation to pay for major capital repairs and maintenance of a building, while the administrative fund is concerned with day-to-day maintenance and upkeep of the building and its systems. The funds are raised by levies to owners in the scheme.
However there are some instances where the money available in the sinking fund or administrative fund (or a combination of both), is not enough to cover the cost of an important improvement project or essential expense. Where such an instance arises, the Owners Corporation Committee and the lot owners may to agree to the raising of a special levy to fund the project.
Special levies are usually considered necessary where they are to replace essential items which are vital to the running of the building. Essential expenses include items such as a faulty lift or fire suppression systems, or a badly damaged main driveway. These items are not only critical to the running of the building, but present a serious work health and safety risk if they are not up to standard. Items such as fading paint on the walls, frayed carpets or a sudden desire to add in a water design feature to the front of the building are not generally considered essential expenses which require the raising of a special levy.
In a recent FAQ, an SSKB Owner’s Corporation had their members raise a special levy for major building works to their property. The works were subsequently completed, but there was a significant surplus in the sinking fund as a result of the special levy. The question asked by the Committee member was whether the owners were entitled to have the excess funds returned to them, an amount which would have totalled approximately $10,000 per lot owner.
The answer to this question lies in section 72 of the New South Wales Strata Schemes Management Act 1996. The section states an Owners Corporation may distribute money in a sinking fund or administrative fund which the Owners Corporation decides is not required for the purposes of the fund, provided it is unanimously agreed on at a general meeting of the Owners Corporation. So provided the Owners Corporation unanimously agrees, the excess funds can be redistributed to the respective owners.
SSKB would suggest committees firstly contact their dedicated community manager to discuss the options available to their body corporate. Every scheme has a different financial situation, and this varies the outcome of different options. One available option could be to hold a general meeting and adjust upcoming levies for the sinking fund to offset the existing surplus.
If you have further questions on how to manage special levies, talk to SSKB. We can provide you with expert strata advice, and tailor it to the details of your individual scheme to ensure the best outcome for you and your scheme.