Articles

Spending limits

Spending Limits

Body corporate funds belong jointly to the owners, and body corporate funds must be spent with due care by the body corporate. To regulate the use of body corporate funds, there are several spending limits in the legislation.

This article gives a practical overview of the limits, and how they work together to control who can spend what, and how that spending must be approved.

General spending limits

These limits generally inform what group is required to approve the spending (e.g. caretaker, committee or all owners), and whether one or more quotes must be considered.

Caretaker spending limit

Buildings which have a caretaking service contractor (sometimes called caretaker, building manager, on-site manager) often delegate a spending power to the caretaker that they can exercise independently. This allows the caretaker to call out tradespeople or purchase supplies without needing a committee resolution for each individual expense.

Is there a default No – depends on the specific contract (but generally in the range $500-$1,000)
Can it be changed Yes – Generally the committee can change the limit within the terms of the contract
Is there a maximum As the limit is granted by the committee, the limit cannot be higher than the committee spending limit. We recommend a maximum of around $2,500
Why change A higher limit allows the caretaker to be more autonomous and to get repairs done more quickly. On larger buildings there can be a significant amount of emails avoided if the caretaker is empowered with a decent spending authority.

Committee spending limit

The committee spending limit is the limit which gets checked most often. Spending within the committee spending limit can be approved by the committee members at a committee meeting, or by a resolution made outside of a committee meting (or VOC for short). This limit covers the day-to-day spending on repairs and maintenance, and most minor projects.

Any spending over the committee spending limit must be approved by a vote of all owners, at an AGM or an EGM.

Is there a default Yes – $200 x number of lots
Can it be changed Yes – At a general meeting
Is there a maximum No – the new limit can be any amount
Why change A higher limit allows the committee more spending power, increases the speed of decision-making and reduces cost for additional general meetings (AGM or EGM) to approve spending

Major spending limit

The major spending limit is the limit above which any project must have two comparable quotes, and those must be presented as a choice for the meeting approving the work (either a committee meeting or a general meeting).

The major spending limit can be higher or lower than the committee spending limit, meaning the two-quote rule may apply both to committee decisions, and to decisions of owners at a general meeting (AGM or EGM).

Is there a default Yes – The lower of $1,100 x number of lots; or $10,000.
Can it be changed Yes – At a general meeting
Is there a maximum No – the new limit can be any amount
Why change A higher limit allows for only one quote to be considered if that is the most practical option.

 

The committee can still obtain multiple quotes but does not need to give owners the choice between multiple quotes.

Insurance spending limit

In March 2021 the legislation was amended to enable the committee to make a decision about mandatory insurance policies, even if the cost of the policy is beyond the committee’s normal spending limit.

Is there a default Committee has unlimited spending power for mandatory insurances
Can it be changed No

Improvement limits

These limits apply to improvements. Improvements are different from general repair and maintenance spending, and are generally classed as optional spending. We have written separately about the difference between maintenance and improvements in another article.

Basic improvement limit

The basic improvement limit is a special limit which restricts the committee’s ability to approve spending on improvements. Within the basic improvement limit, the committee can approve the spending as long as the spending is also within the committee’s spending limit.

Is there a default Yes – $300 x number of lots
Can it be changed No

Ordinary resolution improvement range

The ordinary resolution improvement range is a range of spending on improvements, within which the spending must be approved by an ordinary resolution of owners at an AGM or EGM.

This decision rule applies to improvement spending even if the committee’s spending limit is higher than this limit.

Is there a default Yes – Improvements up to $2,000 x number of lots
Can it be changed No

Special resolution improvement range

The special resolution improvement range is a spending threshold for improvements, above which the spending must be approved by a special resolution of owners at an AGM or EGM. A special resolution is technical but effectively means the spending must be supported by at least two thirds of the voters.

This decision rule applies to improvement spending even if the committee’s spending limit is higher than this limit.

Is there a default Yes – Improvements above $2,000 x number of lots
Can it be changed No

FAQ

Should we change our limits?

Yes – the limit defaults were set in 1997, and due to inflation, the amount of buying power available within those limits has declined over time. Building repair costs and the complexity of systems and equipment in most modern developments mean that most bodies corporate would benefit significantly from increasing the committee spending limit and major spending limit.

Consider for example if your owners and residents are prepared to wait up to 5 weeks over summer to call an EGM to decide if a pool pump to be replaced, when that decision could be made same-day if the committee spending limit was set at a sufficiently high level?

Do the limits include GST?

Yes – the limit applies to the cost of the work, GST and any other taxes and fees are included in the limit. So for the purpose of spending limits, a job quoted at $20,000 + GST is a $22,000 spend for the purpose of assessing spending limits.

Can we break the project down into smaller chunks?

No – the spending limits apply “per project”. Different elements of a related project (e.g. pool renovation) must be added together for the purpose of assessing the limit. In that example, whilst the tiling, rendering, and plumbing might all be relatively low costs, when added together to form the pool renovation project, the total cost must be compared against the relevant spending limits.

Similarly, work which is invoiced in stages over time must also be assessed at the full total rate of the project. It is not possible to break projects down into chunks or separate invoices to avoid the spending limits.

Can we spend more in emergencies?

No – interestingly the body corporate legislation does not allow for any increased spending powers in emergencies.

There is a process under the law which allows for certain decisions to be sped up to assist in emergency situations, but the legal limits on spending still apply.

Obviously there is some common sense needed in emergency situations and some decisions may need to be taken urgently to protect the safety of residents, however it is important for the body corporate to self-govern and ratify any decisions taken in emergency situations.

We recommend anticipating emergency needs when considering what spending limits are appropriate, and setting the limits at a sufficiently high amount to enable emergency spending to occur without significant breaching spending limits.

 

Give us some examples!

Example building:

  • 100 lots
  • Has not changed any of its default limits
  • Caretaker has a $1,000 contract delegated authority for repair spending
  • Default committee spending limit – $20,000 ($200 x 100 lots)
  • Default major spending limit – $10,000 (lower of $10K or $1,100 x 100 lots)
  • Basic improvement limit – $30,000 ($300 x 100 lots)
  • Ordinary resolution improvement range – $200,000 ($2,000 x 100 lots)

Scenarios for our example building

The roller door stops working and requires a service visit

Is this an improvement? – NO

Is this within the caretaker’s delegated authority? – YES, the caretaker can approve and should notify the committee.

 

The lift mirror needs to be replaced for $3,250.

Is this an improvement? – NO

Is this within the caretaker’s delegated authority? – NO, the committee must consider

Is this within the committee’s spending limit? – YES, the committee can approve this expenditure

Is this within the major spending limit? – YES, the committee can just approve the single quote

 

The pool for requires a $15,000 resurfacing repair.

Is this an improvement? – NO

Is this within the committee’s spending limit? – YES, the committee can approve this expenditure

Is this within the major spending limit? – NO, the committee must consider 2 quotes

 

The rooftop entertaining area requires retiling for $42,000.

Is this an improvement? – NO

Is this within the committee’s spending limit? – NO, the decision requires an AGM or EGM

Is this within the major spending limit? – NO, the AGM or EGM must consider 2 quotes

 

The committee wants to paint the old roof tiles to improve appearance for $75,000.

Is this an improvement? – YES, it is not simply repair and maintenance of existing property

Is this within the basic improvement range? NO, the decision requires an AGM or EGM

Is this within the ordinary resolution range? YES, the decision requires a simple majority vote at the AGM or EGM

 

The committee wants to build a gym and sauna building near the pool area for $225,000.

Is this an improvement? – YES, it is not simply repair and maintenance of existing property

Is this within the basic improvement range? NO, the decision requires an AGM or EGM

Is this within the ordinary resolution range? NO, the decision requires a special resolution (2/3 majority vote) at the AGM or EGM

Stay up to date with BCsystems strata articles