If it’s not budgeted for, can the committee spend on it?

It’s a concern that is often raised.  The committee is considering spending money.  The fiscal-conservative on the committee, or the lot owner who disagrees with what it is being spent on, seizes the opportunity to point out that there is no line item for the expenditure in the budgets adopted at the last AGM. 

They will probably point out that the BCCM regulation module states: “If a liability arises for which no, or inadequate provision, is made in the budget, a special contribution must be raised.”

The raising of a special contribution (special levy) can only be approved in general meeting.  So does the committee have to call an EGM before it can spend the money?  Not always.  In fact, very rarely.  Let me explain why.

What the legislation says

 Most missives and adjudication decisions on the ability of a body corporate to spend money raised from its members often start by setting out the finer detail of what Chapter 7 (financial management) of the BCCM Standard and Accommodation Module Regulations say.  I will honour that tradition eventually, but I am going to start somewhere else because those sections of the Regulations need to be put in context.

Section 4 of the Body Corporate and Community Management Act 1997 (Qld) (BCCMA) sets out important and relevant objectives of the Act to:

  • Balance the rights of individuals with the responsibility for self-management as an inherent aspect of community titles scheme.
  • Promote economic development by establishing sufficiently flexible administrative and management arrangements.
  • Provide bodies corporate with the flexibility they need in their operations and dealings to accommodate changing circumstances within schemes.
  • Provide an appropriate level of consumer protection for owners.

Despite an emphasis on giving bodies corporate flexibility, what was produced were Regulation Modules so detailed and lengthy that a District Court Judge once described the Accommodation Module as being “as incomprehensible as it is over-prescriptive”.[1]  More recently,  a QCAT Member also noted how lengthy, technical and complex this legislation is, and commented that if it was “applied at all times, and in all circumstances applied with the utmost rigour and most precious attention to detail, its objects (which I noted above) and policies would be retarded by endemic disputation, rather than advanced.”[2]

With that point of departure, let’s look at what the Regulation Modules say:

  • Each financial year a body corporate must adopt, by ordinary resolution in general meeting, budgets for the administrative and sinking funds.
  • The administrative fund budget must contain estimates for the financial year of necessary and reasonable spending to cover the cost of maintaining common property and body corporate assets, the cost of insurance and other expenditure of a recurrent nature.
  • The sinking fund budget must allow for raising a reasonable capital amount to provide for necessary and reasonable spending for the financial year and to reserve an appropriate proportional share of amounts necessary to be accumulated for major expenditure for 10 years into the future.
  • The body corporate must then fix an amount to be raised on its members to contribute towards the amounts budgeted for.
  • Items of expenditure in a budget are not authority to then undertake the expenditure. Instead, resolutions must be made throughout the financial year to authorise the expenditure.
  • The amount of money a committee can spend is constrained by its spending limit. To provide more flexibility for the committee, the body corporate can adjust the committee’s spending limit from the default set of $200 per lot.
  • If a liability arises for which no, or inadequate provision, is made in the budget, a special contribution must be raised.

That’s not all the legislation says on financial management, but it is enough for the point of this article.

“It’s not in the budget!”

 This complaint is raised on the final point noted above.  Whether there is any force to that complaint depends on what is meant by there being “no, or inadequate, provision” made in the budget, and how an Adjudicator would resolve any dispute that turns on that point. 

The proper interpretation of legislation can be a difficult endeavour.  That is why there are lawyers, adjudicators, judges and an entire legal system of original and appellate courts and tribunals. 

At first glance, the meaning of these words seems obvious:

If a liability arises for which no, or inadequate provision, is made in the budget, a special contribution must be raised.”

Most read those words and take them to mean that if the budget hasn’t provided for the liability that arises (in the sense of there being a line item for it), then a special levy must be raised. 

But those words cannot be read in isolation.  The words must be considered in the context they appear.  You begin by considering the specific provision itself, then the whole of the legislation in which the words appear, and then the general purpose and policy of the section in which the text appears.

That is why I took the time to set out the objects of the BCCMA and then the relevant sections of the regulation that go to financial management before I even mentioned the words under review.

The ordinary meaning of the word “provision” in the context it is used must be a financial arrangement for future eventualities or requirements, such as setting aside an amount in the accounts for an anticipated liability.  It’s meaning cannot be a specific item because:

  • Particularly in the case of the administrative fund, the budget is only set based on estimates. I am yet to encounter a body corporate that has a reliable crystal ball to guide it at a budget committee meeting.
  • The legislature went to the trouble of explaining that the inclusion of an item of expenditure is not authority itself for the expenditure. That must go both ways to reinforce that separate decisions need to be made throughout the year to actually spend the money, and in recognition that the budget is only a guide set on estimates to ensure the body corporate has a reasonable pool of funds it can use throughout the year.
  • There would be nothing flexible about an interpretation of this section that required a body corporate to go to the cost and inconvenience of calling an EGM on each occasion that an expense (no matter how minor) arose that did not match a specific line item in the budget.
  • Lot owners are protected by the requirement that budgets and contributions must be approved in general meeting (so they all have the opportunity to consider and vote on them) and the limits placed on the amount of money a committee can spend.

In my view, the proper interpretation of this section is that provision made in the budget means funds raised and available for use.  In other words, if there is adequate money available from what was raised on the budget, then there is adequate provision.  If there are insufficient funds, then a special contribution must to be raised to ensure the body corporate does not go insolvent.

What adjudicators say

I am not alone in this flexible, common sense approach.  Adjudicators have found:

  • The legislative provisions clearly indicate that the budgets contain ‘estimates’ of necessary expenditure. There is no suggestion in the legislation, either in the provisions relating to the budgets or relating to the control of spending, that budgets set the limit of expenditure on any line item or that spending cannot be approved on any specific project if that would put the spending on that budget line item above the budget estimate for that item.[3]
  • There is no express legislative requirement which prevents sinking fund monies from being applied to authorised, but non-budgeted, items of expenditure pending receipt of an authorised special levy contribution.[4]
  • There is no requirement that funds must be ‘allocated’ for a specified purpose, nor any requirement to raise a special levy for an unbudgeted expenditure if there are otherwise sufficient monies in the funds.[5]
  • It would be an unreasonable expectation that a body corporate must review its accounts for every budget line item every time even small amounts of expenditure are incurred. It would similarly be unreasonable to expect that a body corporate must call a general meeting to adjust the budget if the expenditure on a budget line item had exceeded the estimate by even a small amount.[6]

Many years ago, in Mountainview [2003] QBCCMCmr 308 an Adjudicator put all of these points together nicely by saying:

“…the body corporate believes that it has sufficient funds to undertake the proposal contemplated in either motion 9 or 10, and has not proposed a special levy. I consider this is all within the contemplation of the legislation. This office does not undertake any “big brother” or overseeing role of ensuring that a body corporate has sufficient funds to undertake its proposals. Bodies corporate are independent entities responsible for self management…”

The Mountainview decision may be 17 years old now, but another Adjudicator noted that these comments remain salient today.[7]  That was in a dispute about whether a resolution passed in general meeting to apply the sinking fund towards common property fencing works was valid.  The lot owner complained that the amount to be spent exceeded what was anticipated for it in a sinking fund forecast. 

The Adjudicator did not see it as being part of her role to overturn commercial decisions made by lot owners in general meeting.  As the Adjudicator said: “It is, after all, their money.”[8]

About the author

 Jason Carlson is a partner of Grace Lawyers.  He is also a director of Strata Community Association (Qld) and has been a member of its legislation committee for many years.

In October 2020, Grace Lawyers established a permanently staffed office on the Gold Coast in addition to its office in the Brisbane CBD.

You can learn more about our unique approach to the strata industry here.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

[1] His Honour Judge McGill in Body Corporate for Palm Springs Residences v. J Patterson Holdings Pty Ltd [2008] QDC 300, footnote [10]

[2] Dr Forbes in Carroll and Ors v Body Corporate for Palm Springs Residences CTS 29467 [2013] QCATA 21 at [22].

[3] Parkwood Villas [2010] QBCCMCmr 521.

[4] Peninsula [2011] QBCCMCmr 247.

[5] Evolution Apartments [2019] QBCCMCmr 647 at [37].

[6] Parkwood Villas [2010] QBCCMCmr 521.

[7] Glengarry Private Courts [2019] QBCCMCmr 17 at 29.

[8] Glengarry Private Courts [2019] QBCCMCmr 17 at 30.