What Happens When Body Corporate Budgets Are Not Adopted

body corporate budgetThe biggest complaint about strata schemes is that the levies are too high! Particularly since levies have a tendency to increase, usually by a small amount year in year out.

When they vote at general meetings most owners (if they vote) will vote yes to the legislative motions which include things like confirming the financials and insurance and of course adopting the budget and agreeing to the levy issue.

Sometimes though owners will vote NO to the body corporate budget. They simply do not want to pay that much in levies. The motion is lost. Those proposed levies can not now be issued.

No levy issue is not a good idea

On the surface that might sound great. A break from levies. Yay for the lot owners.

Unfortunately that’s not really what’s going to happen at all.

Being part of a body corporate is like having a baby. The baby itself has no responsibilities, at all, other than getting on with being, and the parents, or in this case lot owners, need to take care of everything.

Levies are the estimated cost of taking care of the baby. You might not agree with those costs, but the simple act of disagreeing, even taking a stand and saying “I won’t pay” is not going to make those costs disappear. They will continue.

Not adopting a budget is only interrupting the income side of the equation.

There are reasons that levies are issued over a number of periods

It’s common practice to issue levies over a number of periods throughout the year. Most bodies corporate do this and for some very solid reasons.

Firstly, it’s easier for the majority of lot owners to pay multiple smaller amounts than one lump sum. If the body corporate could issue one levy per year, and everyone would pay, terrific. It’s a lot less cost and effort for them.

But not everyone could or would pay. And chasing levy arrears is a chore which generates more costs. Then those costs have to be collected, and on and on it goes.

Breaking levies into smaller amounts payable more often ensures the most people can pay as they fall due.

Secondly the body corporate needs hefty chunks of money in the bank to ensure they can meet their financial needs as they go along. Costs are incurred day in day out and the payments need to be made as they fall due.

Monthly levies would be ideal for lot owners, however that would generate a lot of administrative cost and may not collect enough funds to meet some expenditure, like the insurance premium.

Quarterly or every four months offers the best compromise.

No levies issued interrupts collection of costs

The body corporate costs are not going to change, stop, minimise or anything else because the lot owners can’t agree on the yearly body corporate budget.

Those costs will continue to be incurred and fall due.

But if no levies are agreed at the AGM then a levy notice can’t be sent to lot owners and levies aren’t collected.

If there is no income then the ability to meet the costs as they fall due is going to be compromised.

What’s likely to happen is that more costs end up being incurred, further increasing the body corporate budget.

Voting down the body corporate budget will add more costs

Situations where a body corporate can get away without collecting levies are few and far between. In the vast majority of cases its essential for management.

Levies simply must be collected.

If the body corporate budget is not adopted at the AGM then an EGM will need to be held in the near future to adopt a budget.

Body corporate management agreements will include the cost of one AGM per annum and a certain amount of Committee meetings. In most cases an EGM is an additional expense.

So along with the costs of copying the Notice of Meeting and sending it to every lot owner the scheme will also have to pay the body corporate manager for preparing the notice and attending the EGM.

The budget will presumably need to be reworked as well in order to get lot owners to pass the motion.

Once a body corporate budget has been adopted the levy notices will be issued.

This whole process can take up to six weeks to two months which means the levies, when finally issued, will be due immediately with the next round of levies due in a month or so.

A better alternative

The funny thing is, when these situations arise, the levies that get passed are usually very similar to what was voted down at the AGM.

It’s a myth that the body corporate is trying to make money off the lot owners. It’s a myth because legislation just doesn’t allow it. A body corporate is a cost sharing mechanism, not a business.

So the body corporate budget is not about ripping off lot owners. It’s an estimate of how much it will cost to do the things the Committee plan to do.

There is usually wriggle room in the budget though, things that can be ignored, done more cheaply or postponed.

Which is why there is provision to amend the body corporate budget at the AGM. The levies may be altered by 10%, upwards or downwards, by those lot owners voting at the AGM.

If lot owners disagree with the body corporate budget then it makes more sense to move a motion to lower the levies by 10% than to vote NO to the motion.

Lowering the levies will relieve the pressure of the increase on the lot owners.

It will also avoid the costs associated with not adopting the body corporate budget at AGM.

How to alter levies by 10% at AGM

Most votes at any general meeting are cast by voting paper. Only a few people need attend the meeting in person to make up a quorum and allow the meeting to proceed.

Those who’ve voted by voting paper have cast their vote, yes or no.

But, at the meeting a motion may be raised to amend the levies by 10%.

If that motion is passed effectively it invalidates the votes cast by voting paper. Those who’ve attended the meeting will be able to carry the vote.

What if I really don’t like the body corporate budget?

The purpose of this article is to bring awareness to what happens when budgets are not adopted at the AGM.

You might disagree with a proposed budget for many reasons.

If you’re trying to sell a substantial increase in levies is going to impact your ability to find a buyer.

Or you might disagree totally with something the body corporate is trying to do. If you disagree with what’s happening then you should always vote as your conscience dictates.

If you disagree simply because you think the levies are too high already then consider the implications of what will happen if the budget is not adopted.

My aim here is not to tell you how to vote rather to help you make informed decisions.

THE BASICS OF BODY CORPORATES

A little knowledge can go a long way


I see so many stressful and frustrating issues in body corporate records that result from simple misunderstandings it hurts my head. If I could do one thing to help it would be to teach everyone the basic rules, so they can avoid all these dramas.


With that in mind I've put together a short eBook that sets out the basics everyone owning in a body corporate really should know. It won't make those big issues go away, but it will give you a firm grounding from which to communicate.


It's completely free, so please, download it now!

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Comments

  1. Very interesting and useful. Just a note – this is not a case study, but is a good explanation.

    • You’re so right Pippa! It was an article that started out one place and ended up somewhere else. I kept going, oh I can’t say that. In the end I decided to make it more general and didn’t change the name and branding of the article.Sigh.

  2. Thanks:)

  3. I’ve just bought a unit and am confused about the budget-setting that you mentioned.
    Who sets the proposed budget for the AGM? The committee? The treasurer? The body corporate manager?
    And what if the meeting wanted to increase the proposed budget by, say, 15% because of some issue that arose after the proposed budget was framed? Would an EGM be needed for that too?

    • Hi Frank

      Thank is an excellent question which I like so much I’m going to write an article about. Do you mind if I reference your question?

      The short answer is: The committee meet at the Budget Committee Meeting where they set the budget for the year.

      The proposed budget is then put forward to the lot owners as motions at the AGM. The owners may approve or disapprove the budget at the meeting. They may also alter the amounts by up to 10%, either up or down, by vote at the meeting (assuming someone is there). All that’s required is for someone to raise the motion to amend the levy amount(s) and then pass that motion by simply majority. Importantly once that’s done passing of the amended motion for levies will then be in the hands of those who vote at the AGM.

      If unexpected expenditure arises after the budgets are set then an EGM is required to raise a special levy.

      That’s the short answer. I’ll go into more detail in an article if you’re interested.

  4. Thank you for the short reply and yes, I’d be very interested in an article covering the topic in depth and you are most welcome to use my question..
    Frank

  5. Hi we just purchased a unit in qld and I attended my first AGM last week where I was told if I don’t approve the budget set by the body corporate committee I would have to set a new one myself for consideration….. To which our strata manager agreed! Is this practice?? I am a owner and on a committee for a unit myself and husband own in nsw and was under the assumption that it was a vote not a war … Please help I am really confused

    • Hi Julie

      You are free to vote however you choose to vote at AGM meetings, and no, you don’t have to prepare a new budget if you don’t want to, regardless of what others might think.

      It is short sighted to vote no unless you understand what is happening and why. This article gives you more detail.

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