Body Corporate financial management
The body corporate has a number of financial powers and duties under the Unit Titles Act. These include:
- levying contributions to cover general administration, maintenance and insurance
- levying contributions for any of the funds that the body corporate may have
- borrowing money
- investing money
- recovering money owed
- charging penalty interest
- paying the body corporate’s expenses
- keeping financial records
- preparing annual financial statements.
The body corporate accounting records must correctly record and explain the financial transactions of the body corporate, and enable its financial position to be determined with reasonable accuracy to allow the financial statements to be audited or reviewed.
The body corporate accounting records are used to prepare a financial statement. The most recent financial statements must be sent with the notice calling the Annual General Meeting (AGM).
The form and minimum content of financial statements are prescribed in Regulation 32 of the Unit Titles regulations 2011.
The body corporate must submit its financial statements to an independent auditor or accountant within 2 months of the end of the financial year. The body corporate may decide by special resolution at its AGM not to submit accounts to an independent auditor or accountant for a particular year. However, the body corporate must still keep full accounting records and statement and also attach those to the notice of Annual General Meeting.
The body corporate must establish an operating account. The operating account is used to meet operational expenses that relate to:
- managing and governing the development (e.g. costs associated with holding meetings)
- providing services and amenities for the benefit of the development (e.g. central air conditioning or centrally metered water provision)
- statutory or regulatory compliance costs
- ground rental or licence fees relating to the underlying land
- maintenance costs for the development incurred at least once a year (e.g. pool cleaning or aintaining gardens).
Long-term maintenance fund
The body corporate must establish and maintain a Long-Term Maintenance Fund (LTMF), unless the body corporate decides this is not necessary, and can only do so by special resolution. This fund can only be used for expenditure that is detailed in the long-term maintenance plan. The body corporate must approve, by special resolution, any spending on a single maintenance item if the spending exceeds the budgeted amount in the long-term maintenance plan by more than 10 per cent.
Unit owners contribute to maintenance under the Long Term Maintenance Plan in proportion with their utility interest.
The body corporate may establish and maintain the following funds (in addition to the operating account and LTMF) if it decides they are necessary:
- one or more contingency funds
- a capital improvement fund.
The body corporate may establish and maintain one or more contingency funds to provide for unbudgeted expenditure.
Capital improvement fund
The body corporate may also establish and maintain a capital improvement fund, for expenditure that adds to or upgrades the unit title development that is not already provided for in the long-term maintenance plan.
Any of the body corporate’s funds can either be set up as separate bank accounts or as a single bank account, providing each fund is kept entirely separate and is able to be identified.
The body corporate determines the amount unit owners will contribute to body corporate operational and maintenance expenses – this is usually agreed at the annual general meeting to apply for the year ahead.
The contributions are paid into the operating account or any other fund the body corporate has set up.
The body corporate will determine the date on which contributions must be paid and may charge interest on any unpaid amounts.
An owner’s contribution to the amount levied by the body corporate is determined by either utility interest or ownership interest.
- For the operating account, the long-term maintenance fund and the optional contingency fund, each owner contributes according to their utility interest.
- For the optional capital improvement fund, each owner contributes according to their ownership interest.
If an owner does not pay, or refuses to pay, the body corporate can enforce payment through the Tenancy Tribunal or courts. The body corporate can recover the cost of collecting the debt in addition to the original amount owed and any penalty interest.
Ownership interest and utility interest
Ownership interest is a number that reflects the relative value of each unit to the other units in the development. It must be set by a registered valuer.
Ownership interest is used to determine a range of matters including:
- the unit owner’s beneficial interest in the common property
- the extent of the each owner’s liability if the body corporate is sued or sues someone else
- the unit owner’s share in the underlying land if the unit plan is cancelled.
By default, the utility interest of a unit is the same as the ownership interest. The body corporate can decide to change the calculation of the utility interest from the relative values of the units to a different
method of calculation. For example, the body corporate could decide it is fairer for all unit owners to contribute an equal amount and change their utility interests accordingly.
The utility interest is used to calculate how much each owner contributes to operational costs of the body corporate.
The body corporate is responsible for insuring all buildings and improvements in the development to their full insurable value.
If the development is made up of stand-alone units, the body corporate may decide, by special resolution, that unit owners are responsible for insuring the buildings and improvements within their own unit. The body corporate will remain responsible for insuring the common property.
If the land and buildings cannot be insured for full replacement cover (for example, if the buildings are heritage buildings) the body corporate may take out indemnity cover.
Where can I find more information?
For Unit Titles advice and information call 0800 UNIT TITLE (0800 86 48 84), visit the Unit Title Developments section of our website or email at email@example.com.