Case Study: The Consequences of Apathy in Bodies Corporate

Apathy in a body corporate is cause for alarm. It’s also a problem that is rife.

Many people buy a unit with nothing but a rudimentary understanding bodies corporate and how they work and then proceed to ignore and complain about the body corporate as if it’s of no relevance to them at all.

Unfortunately for a scheme that can be a bit of problem. How much of a problem?

The Case

In this building no lot owner had voted at an AGM for over three years and there was no Committee and therefore no issues being addressed.

The body corporate manager prepared Notices of AGM, which were then dispatched to owners but with no reply. The meetings were adjourned for seven days for lack of quorum and when reconvened, since no votes were received, all motions were declared lost.

At that point the body corporate should pretty much grind to halt. If no levies are approved at AGM then no levies should be issued and the scheme will quickly run out of money in the administrative fund.

And hey, nothing generates action like having no electricity in your building.

But, in this case the body corporate manager simply continued to issue the levies at the last approved rate. They also continued to pay the bills as they came up.

Other than set-and-forget contract expenditure, like electricity or gardening, issues were only dealt with as they became urgent such as a burst water pipe.

The body corporate just kept ticking along.

The Consequences

No major expenditure. No major problems. Levy notices are issued, owners pay their levies, most of them anyway, and things just keep on going. That actually sounds pretty good doesn’t it?

Except for the financial position that is.

There’d been no increase in levies for three years. There had been major unexpected expenditure (the burst water pipe) and costs overall had increased. The administrative fund levy being collected wasn’t enough to meet the costs.

Body corporate managers run one bank account that holds both administrative and sinking funds. There was money in the bank so the body corporate manager simply continued paying the bills driving the administrative fund into deficit which was financed with sinking funds.

By the time I did the search there was a deficit of $20,000 in the admin fund. That is a very real debt that needs to be repaid. Over 18 units that’s $1,111 each.

That may not sound like a lot, and for property it’s really not, but it’s only the tip of the iceberg. Other factors to consider are:

• After the debt is repaid the administrative fund levies will need to increase substantially to meet ongoing expenditure.
• There’d been no Sinking Fund Forecast for many years and no increase in levies. Of the small balance available 1/3 had been spent on administrative costs. Sinking fund levy increases are very likely.
• No complaints are a result of no owners living onsite, which means the actual building likely hasn’t been inspected for problems for at least three years.
• No maintenance issues have been addressed other than emergency measures and the likelihood of unresolved problems is high.
• Unaddressed maintenance issues have a tendency to get worse. Unfortunately the current sinking fund balance would be unlikely to meet costs for any major works.
• There was nothing to indicate that fire safety matters have been addressed leaving the scheme open to fines or, you know, fires.
• Poor maintenance, and management for that matter, reduce the overall value of a scheme lowering resale prices.

The true extent of this problem is not something that can be resolved by a search of the body corporate records, which will only show what has been reported.

There is no interaction between lot owners and residents on file to give clues as to what’s going on. That’s not uncommon in smaller buildings however there isn’t any one person who might have that knowledge either.

The lot owners have simply abdicated their responsibilities to the body corporate manager but without actually appointing and paying them to act in their stead. Consequently no one is acting.

For a potential owner this building represents either an enormous risk or a great opportunity depending on how much time and money they’re willing to expend.

What should be factored in is that any period of apathy in any building is going to result in considerable expense bringing it back to optimum condition.

Symptoms of apathy in a body corporate

Apathy is common in bodies corporate and it has a significant impact. At best it will drive up costs, and at worst the building could end up derelict.

Common symptoms are:

• Adjourned general meetings
• Adjourned committee meetings
• No votes at general meetings
• No Committee nominations / elected
• No complaints / Continual complaints about the same thing

Adjourned general meetings

Before a meeting can start a quorum must be achieved. In most schemes a quorum is 25% of the lot owners. The owners may be “present” by voting paper but at least two of them need to actually be there, in the flesh, as it were.

It’s surprisingly difficult to achieve quorums.

If no quorum is achieved the meeting is adjourned and then reconvened in one week.  The votes cast will be counted at the reconvened meeting.

Because of this process it is possible for a handful of people in schemes of all sizes to control the voting and the Committee election by simply turning up.

Adjournments adds costs and leaves the leadership and direction of a scheme in the hands of a few people. Don’t be surprised if they pass motions you don’t like.

Adjourned Committee Meetings

Committee meetings need quorums to proceed the same as general meetings.

An adjournment of a Committee meeting is far more problematic because it indicates that even those who’re elected can’t be bothered attending.

The business of the body corporate happens at Committee meetings. If no members, or not enough, attend it’s going to be very difficult to get anything done.

If Committee meetings are adjourned they rarely get reconvened. Committee members are volunteers and having cleared their schedule once, for no purpose, they’re seldom happy to do it again a week later.

No Votes at General Meeting

Not achieving a quorum is common, but, if at least one person has cast a vote the body corporate can continue on.

If there are no one votes cast then no motions are passed and that can be a problem, especially when it comes to cash flow. Bodies corporate are reliant on a steady stream of cash to meet their needs.

If no levies are passed the body corporate will run into financial problems sooner or later. Hopefully body corporate management opts to make it sooner.

No Committee nominations / elected

It’s common for no one lot owner to nominate for Committee.

Usually someone, the outgoing Committee at least, shows up at the AGM and can be persuaded to take on the responsibility then.

If no one nominates and no one shows it’s a different story.

Essentially the body corporate has no leader which has all the ramifications discussed above. Further an Extraordinary General Meeting (EGM) needs to be called to appoint either the body corporate manager or a lot owner to the Committee, at further cost to the scheme.

No complaints / continued complaints about the same thing

If there’s a leak in the roof of a multi-story building and you live on the ground floor then it’s unlikely to be an issue for you.

You can only hope that someone who lives on the top floor does report it, otherwise the problem may not be addressed and you end up with an expensive hole in your roof.

This is the power of bodies corporate; they crowd source inspection of the property for an overall higher level of maintenance.

That can all be side tracked if no one reports the issues they see, which is common when the building is mostly tenants rather than owners.

Of course reporting the issue, even multiple times, is of no use at all if no one ever does anything about it.

Both are indications of apathy among the lot owners.

How not to be apathetic in your scheme

Living in a body corporate is a lifestyle choice and part of that choice is not having to mow lawns or clean the pool.

So how do you make the most of your lifestyle whilst still showing the care and attention the body corporate needs?

Here are some ideas:

• If you do nothing else vote at general meetings. If you can attend the meeting please do so, but if not submit your voting paper. So important.
• Form relationships with your fellow lot owners. They don’t need to become friends but if you do at least have a passing acquaintance it will help when major issues roll around.
• Keep your eyes open around the property and report any maintenance issues. An email is great and it will form part of the body corporate records which builds a history. Plus the issue might get fixed.
• Take an interest in your investment. Read the minutes when they’re distributed and keep up to date with what’s happening. Interest and interaction from one person may spark it from another.
• Join the Committee. Your opinion is as valid as the next lot owners and you might have a valuable contribution to make. Get involved!

Apathy is catching.

It is extremely difficult for one person to continue on when their fellow Committee members have deserted them and the lot owners display neither gratitude nor interest. It’s easier to just quit as well.

Apathy is catching, but luckily so is interest.

Keep your eye on what’s happening in your scheme, vote, support the Committee and if you can, get involved.

Ignoring it is not going to make it go away.

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