In some instances, particularly in a macro environment where cost of living pressures continue to rise, an owners corporation may inevitabilty encounter a daunting situation where it runs out of funds to cover necessary operating expenses or significant annual expeneses such as insurance premium. To avoid lights going out, rubbish piling up or breaching the Strata Schemes Management Act, here are some of the options to restore financial stability for your community.
Dip into Capital Works Fund
Assuming the owners corporation has adequate funds in its capital works fund, specifically designed for non-recurring capital expenditures, it can transfer funds to the administration fund to cover operating expenses. After the introduction of the new Strata Legislation Amendment Bill 2023, the owners corporation now has discretion to decide, within three months, to what extent the transferred funds must be repaid.
Raise Special Levies
Call a General Meeting to determine and raise a special levy, especially when both administrative and capital works funds are in deficit. This levy can be structured as a lump sum or by instalments, with individual contributions based on unit entitlement. Once approved, owners are obliged to pay the special levy by the due date.
Increase Levies
Consider raising quarterly levies to ensure adequate funds for upcoming expenses. This increase can be temporary (e.g. for the next three quarters) and aimed at covering specific events, such as repairs or maintenance, one-off capital expenditures.
Apply for a Strata Loan
As a last resort, explore the option of a strata loan designed for owners corporations. This loan, subject to application approval, provides immediate access to funds for major repairs, renovations or other major expenses. Carefully consider the cost implications, including interest, before opting for a strata loan. Funds typically won't be transferred at once but rather by drawdown. A drawdown request will need to be provided to the lender to ensure the funds are being directed to activities associated with the approved loan application. Repayment terms vary but commonly include regular principal and interest instalment payments.
Apply for Premium Funding
Insurance premium typically constitutes a significant portion of owners corporations' expenses. At Compass Strata, we collaborate with leading specialist strata insurance brokers in Australia who offer insurance premium funding. This unique arrangement enables the Owners Corporation to spread the premium payment over 10 manageable instalments instead of a lump sum upfront. While this convenience comes with a small setup fee and interest payment, the application process is usually more straightforward and faster compared to a traditional strata loan.
Reduce Expenses
While trimming expenses may not provide an immediate solution for urgent financial needs, reassessing current expenditures and implementing cost-cutting measures—such as adopting energy-efficient solutions or collaborating on shared services with nearby buildings—can generate long-term savings. This, in turn, allows for the redirection of funds to address more pressing needs.
As the custodian of your strata's financial well-being, Compass Strata is here to guide you through the complexities of financial management. Our experienced team ensures stability and compliance, offering tailored solutions to safeguard your community's financial future. Trust Compass Strata to navigate the financial intricacies and empower your strata for sustained success.
