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: 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 it law in Victoria to have a 10 year building plan and who would do this?
• QUESTION: Is a 10 year maintenance plan mandatory if the complex has less than 100 units or annual fees under $200,000?
• QUESTION: Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget. All levies are going to the administration fund. What about maintenance?

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: [email protected]
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: [email protected]
P: 1800 808 991

Tim Fuller
Strata Guardian
E: [email protected]
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: [email protected]
P: (03) 8726 9962

This post appears in Strata News #553

Question: Is it law in Victoria to have a 10 year building plan and who would do this?

Answer: Typically a building professional such as a quantity surveyor would prepare a Maintenance Plan for an Owners Corporation.

Section 36 of the Owners Corporations Act 2006 states the following:

Maintenance plan

1. A prescribed owners corporation must prepare a maintenance plan for the property for which it is responsible.
2. An owners corporation (other than a prescribed owners corporation) may prepare a maintenance plan for the property for which it is responsible.
   A prescribed is defined as:
   
   1. an owners corporation that levies annual fees in excess of $200 000 in a financial year;
   2. an owners corporation that consists of more than 100 lots.

Section 37 of the Act provides the following advice in relation to what a Maintenance Plan must contain:

What must a maintenance plan contain?

1. The maintenance plan must set out—

   1. the major capital items anticipated to require repair and replacement within the next 10 years; and
   2. the present condition or state of repair of those items; and
   3. when those items or components of those items will need to be repaired or replaced; and
   4. the estimated cost of the repair and replacement of those items or components; and
   5. the expected life of those items or components once repaired or replaced; and
   6. any other prescribed information.

2. In this section—
   “major capital item” includes—
   1. a lift; or
   2. an air conditioning plant; or
   3. a heating plant; or
   4. an item of a prescribed class.

Typically a building professional such as a quantity surveyor would prepare a Maintenance Plan for an Owners Corporation.

Gregor Evans
The Knight
Email
P: 03 9509 3144

This post appears in Strata News #504.

Question: Is a 10 year maintenance plan mandatory if the complex has less than 100 units or annual fees under $200,000?

I am in Victoria and honorary Secretary to an owners corporation with 15 ground floor units.

I understand that a 10-year maintenance plan is not mandatory unless the complex has more than 100 units or annual fees over $200,000.

It is then called a prescribed Owners Corporation.

Answer: If the Owners Corporation is not classified as prescribed it does not need to prepare a Maintenance Plan.

You are correct. In the event the Owners Corporation is not classified as prescribed, it does not need to prepare a Maintenance Plan. The requirements for a prescribed Owners Corporation under the Owners Corporation Regulations 2018 Section 6 are:

1. An Owners Corporation that levies annual fees in excess of $200,000 in a financial year;
2. An Owners Corporation that consists of more than 100 lots.

Even if an Owners Corporation is prescribed, and prepares a Maintenance Plan, there is still no obligation to implement that Maintenance Plan. However, the question is, why would you prepare one and then not implement it? Seems counter productive.

In your case, you do not need to prepare a Maintenance Plan, but it is always good practice to do so. Buildings need regular and ongoing maintenance, without it, they deteriorate and end up costing more in the long term (maintenance vs replacement). So, have a discussion with everyone and put some pro-active plans in place to start addressing those long term items like painting and refurbishment works, which will not only sustain, but maintain or increase the value of your assets.

Joel Chamberlain
Horizon Strata Management Group
E: [email protected]
P: 03 9687 7788

This post appears in Strata News #411.

Question: Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget. All levies are going to the administration fund. What about maintenance?

Our Owners Corporation manager has advised that since there was no one present at the AGM, they have pushed forward with a budget.

The budget has been provided and shows that all of our levies are going to the administration fund and nothing toward the maintenance fund.

We currently do not have a maintenance plan and are not required to have one by law. If we sign this, does that mean we cannot use our money for maintenance issues later?

Can I charge the OC manager with a breach of OWNERS CORPORATIONS ACT 2006 (NO 69 OF 2006) – SECT 5: Owners corporation must act in good faith since they intend to reserve all our levies for themselves and force the owners to raise a levy if any maintenance issues arise?

Answer: If the Manager has not been provided with a proxy with specific direction to resolve and formally adopt the budget, then I cannot see how this resolution can be passed.

There are a couple of questions here which require answering, so bear with me.

Firstly, if there were no members present at the meeting (in presence or by proxy), then I cannot see how the meeting can proceed.

The only instance where physical presence is not required to proceed with a meeting is if the Manager has been appointed as a proxy on behalf of a lot owner. However, as an appointed proxy, unless explicitly instructed on how to vote on each resolution, then the Manager is restricted in what matters he or she can resolve without direction.

An example of this would be the appointment or renewal of the Managers contract, as this would bring rise to a potential conflict if the Manager were to resolve to re-appoint themselves. The same could be said for the Manager approving a budget which increases their annual management fees.

Again, if the Manager has not been provided with a proxy with specific direction to resolve and formally adopt the budget, then I cannot see how this resolution can be passed.

Your question about the Maintenance Fund contributions has several components which need to be considered.

Firstly, if you do not have a Maintenance Plan, then you have some flexibility with the way you can treat Maintenance Fund contributions and expenditure. However, it is always good practice to apply the same methodology you would to the operation of your Maintenance Fund as if it were formally adopted in accordance with the requirements set out under the Act – see Division 3– Maintenance plan.

By applying the same methodology to the operation of your Maintenance Fund (regardless of formal adoption), one would find it difficult to make a case that the Owners Corporation had not complied with its obligations under Sec 5 of the Act.

Sec 5. Owners corporation must act in good faith An Owner’s Corporation in carrying out its functions and powers—

1. must act honestly and in good faith; and
2. must exercise due care and diligence.

Secondly, when you refer to “Maintenance Issues”, there can be some confusion about the word “Maintenance” in the context of the Maintenance Fund.

The label Maintenance Fund is merely a term used to differentiate between the Administration Fund. The original terminology for a Maintenance Fund was, in fact, a Sinking Fund. Some states still use this terminology; however, in Victoria, we like to do things a little differently.

A Maintenance Fund is actually for the purpose of funding capital works for the Owners Corporation. These works are identified when you engage a suitable professional to prepare a Maintenance Plan. The Plan sets out the major capital items anticipated to require repair and replacement within the
next ten years.

So, to answer your question, no. You may use funds to address maintenance issues when required. Items which require general maintenance can be attended to at any point and payment made from the Administration Fund to meet those costs. If the item is anticipated during the financial year, it is always good practice to budget an allowance for upcoming maintenance in the budget.

Further, provision and general allowance for un-expected maintenance items should also be included in a budget. These typically fall under the categories of Electrical, Plumbing, Cleaning and General Repairs to Common Property. Depending on the size of your property will determine the amount set aside for these items. It can be as little as $500 for each item for a 10-lot development, or a minimum of $2,000 for significant developments over 100 lots. Proper planning with your budget leads to minimising any need for one-off special levies at the last minute.

The vast majority of small Owners Corporations in Victoria like yourselves don’t often have a Maintenance Fund. However, it is always good planning and pro-active management to consider implementing some form of contributions to a Maintenance Fund, or at the very least, ensuring you have adequate surplus in your Administration Fund to cover unforeseen expenses.

Finally, you can’t charge or breach the Manager for something the Owners Corporation is required to do. The Manager and the Owners Corporation are separate, and both have obligations under the Act.

You might argue that the Manager in some capacity, has breached their obligations under Sec 122.

Sec 122. Duties of Manager

1. A manager —

   1. must act honestly and in good faith in the performance of the Manager’s functions; and
   2. must exercise due care and diligence in the performance of the Manager’s functions; and
   3. must not make improper use of the Manager’s position to gain, directly or indirectly, an advantage personally or for any other person.

A breach under this section is, however, a serious accusation to make and you should be absolutely sure before you proceed down this path.

In reading between the lines, and I say this respectfully, I see the main issue here maybe lack of engagement between the members and the Manager. As Managers, we see this all too often when an Owners Corporation looks to the Manager to operate the Owners Corporation with little to no input.

A Managers role is to administer the decisions of the Owners Corporation. It is not to make decisions on behalf of the Owners Corporation.

When members do not attend an AGM, the Manager has no direction and cannot effectively manage your Owners Corporation. An AGM is the one opportunity members have to provide input to the management of their Owners Corporation each year. The Manager requires your input so you can direct them to achieve the outcomes you desire, and in turn, they can do what they’re engaged to do.

I’m not stating the Manager here is in the right, nor anyone is in the wrong. However, it’s merely the right hand not talking to the left, which never ends up working as intended.

I suggest discussing your concerns with your Manager and asking these questions. It seems relatively simple to resolve, and if necessary, convene another meeting to determine outcomes you deem satisfactory.

Joel Chamberlain
Horizon Strata Management Group
E: [email protected]
P: 03 9687 7788

This post appears in Strata News #340

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

Embed

Read next:

• VIC: How Can An Owners Corporation Survive a Cash Flow Crisis? [Step-By-Step]
• VIC: Q&A Clear Guidelines – Safety Precautions in Relation to COVID-19
• NAT: Coronavirus & Strata – What Does the Legislation Say? Not Much!

Visit our Your Strata Levies OR Strata Title Information Victoria

Looking for strata information concerning your state? For state-specific strata information, take a look here.

After a free PDF of this article? Log into your existing LookUpStrata Account to download the printable file. Not a member? Simple – join for free on our Registration page.