Strata – Owners Corporation obligation to implement 10 year Capital Works Fund Plan

01/08/2018

The Strata Schemes Management Act 2015 (SSM Act 2015) has introduced a requirement that the Owners Corporation prepare and implement a plan of anticipated major expenses to be met from the Capital Works Fund for a period of 10 years.

The Owners Corporation usually engages an appropriate Quantity Surveyor Consultant to prepare the 10 years Capital Works Fund Plan.

There are usual expenditures that are re-occurring for example replacement of external elements of the building for example balustrades, planter boxes, external doors, shutters, guttering, roof, plumbing and services including lifts and air conditioning services if appropriate, and common areas and fencing.  Most of these items are reoccurring (at different intervals) for example, painting would be reoccurring usually on a 10 years cycle.

Most of the Consultants who prepare the 10 year Capital Works Fund Plan utilise a generic template and usually there is not an extensive investigation by independent Consultants of the requirements for particular works to properly maintain the building.  The Consultant relies upon instructions from the Owners Corporation as to the various elements.

It is useful to obtain the services of a Consultant who can provide cost efficient 10 year Capital Works program.  It is important that the Owners Corporation consider issues that might be out of the ordinary and in particular any issues of concern so that these items are considered and incorporated into the 10 years Capital Works Plan.

The SSM Act 2015 requires the Owners Corporation to raise at each Annual General Meeting (AGM) a contribution for the amounts stated in the 10 year Capital Works Fund to cover the items for the coming year.  There are various circumstances were there are some exceptions to the Owners Corporation’s obligations to raise by way of levies for the Capital Works Fund sufficient to cover those items in the 10 year plan.

We suggest that prior to each Annual General Meeting there be consideration of the status of the 10 year Capital Works Plan and if there are provisions within the Plan that were not required at the time or cost as set out in the original Capital Works Plan, the Owners Corporation should consider seeking by way of an ordinary resolution a review, revise or to replace the Plan.

The purpose of the Plan is to ensure that the Owners of the various lots are aware of the proposals and requirements for contributions to cover the Capital Works Plan over the following years.

The SSM Act 2015 provides that in estimating amounts to be credited to the Capital Works Fund the Owners Corporation must take into account anticipated major expenditure in the 10 year plan and also the amount available in the fund.

If there is to be a shortfall the Strata Information Certificate needs an explanation as to how the shortfall is to be dealt with in the future by the Owners Corporation.

In some circumstances the shortfall may be dealt with by obtaining an appropriate loan by the Owners Corporation to cover the works.  We caution Owners Corporations from taking such loans without very careful consideration as it is merely putting off the day of reckoning for payment of those expenses.

If a lot owner is dissatisfied with the implementation or the requirements concerning the Capital Works Fund Plan and or the levies; a lot owner could bring proceedings at the NSW Civil and Administrative Tribunal (NCAT) seeking appropriate orders.

NCAT has discretion of whether or not to order the Owners Corporation to raise by way of levies the amounts stated in the Plan.

The Owners Corporation must pay to the Capital Works Fund the contributions levied for payments in relation to the matters referred to in the Fund and must pay money from its Capital Works Fund only for various particular items including but not limited to those for which estimates have been made as referred to above.

Separately from the Capital Works Fund the Owners Corporation must establish an Administrative Fund.  There is some “debate” as to some items which may be part of the Administrative Fund or Capital Works Fund.  However the Capital Works Fund is fundamentally for Capital Works and expected expenditure for example, for painting any part of the common property or other structure, to acquire personal property, to renew or replace personal property, to renew or replace fixtures and fittings that are part of the common property, to replace or repair common property and to meet other expenses of a capital nature. 

Each owner should consider the proposed plan and to make informed decisions when considering the plan at the Annual General Meetings as it will impact upon levies payable and the funds available for the future maintenance of the property.

If you are a lot owner and have any concerns or queries regarding an upcoming Capital Works Plan for your strata scheme and/or how it will impact on you as a lot owner please contact Richard Watson Senior Strata Solicitor or his Personal A ssistant Shereen Da Gloria to discuss your concerns.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.