A young couple were looking at purchasing an apartment.  They received the details of the Body Corporate’s accounts as part of disclosure documents provided when they signed the Agreement for Sale and Purchase, and had seen that there was a large sum of money sitting in the long term maintenance fund. 

They also were aware from reports provided in the disclosures that the Body Corporate had weathertightness issues, so assumed those funds in the long term maintenance fund were for that project.

Once they took legal advice they discovered that the funds in that particular account were not for the remedial works required for the weathertightness issues, but were instead for other maintenance. 

This meant that in the next few years there would need to be a large amount of special levies struck in order to fund the weathertightness remediation project.  This put them off purchasing the apartment, as they knew they would not be able to fund such levies in their circumstances.

If you are purchasing an apartment you should receive financial statements from the Body Corporate as part of the pre-contract disclosure statement.  It is important for you to be aware of the state of the Body Corporate’s accounts as this will likely affect the levies you will need to pay in the future.

It is also important to be aware of what each account or fund is for, as the legislation requires certain funds to be used for certain purposes only.

It is compulsory for a Body Corporate to have an operating account, however all of the other funds are optional.

Operating account

This is the general account that levies are paid into and that ordinary bills are paid from.

Long-term maintenance fund

This is a fund created to cover maintenance as set out in the Body Corporate’s long-term Maintenance Plan. It is not compulsory for a Body Corporate to have this fund as members can vote against having one by special resolution. 

However, it is compulsory for all Body Corporates to have a long-term maintenance plan, and they should not be using any other funds to fund the work covered in such plan.

Purchasers should compare the long-term maintenance plan with the long-term maintenance fund to see if there are any upcoming works which will require an increase in levies. Ideally, there should not be a huge shortfall between the estimated cost of proposed works and the amount in the fund. Purchasers should also consider levies that have been struck to boost the fund, but are not yet due for payment.

Optional contingency fund

This is an optional fund for unbudgeted expenses of the Body Corporate. This is the fund that should be used for large scale projects which are not included in the long-term maintenance plan/fund, such as weathertightness repairs and earthquake strengthening.

If disclosure material refers to weathertightness or earthquake issues, you should be looking for a healthy sum in the contingency fund to fund this work if you are looking to buy an apartment in the complex.

Optional capital improvement fund  

This is a fund for spending that adds to or upgrades the unit title development if the spending is not included in the long-term maintenance plan. An example would be if the Body Corporate decides to turn a grassed area into a swimming pool or change carports into garages.

What levies will be apportioned on settlement?

The Agreement for Sale and Purchase provides that only operating levies struck before settlement (whether they are payable before or after settlement) are apportioned on settlement.

Levies relating to the long-term maintenance fund, contingency fund, and capital improvement fund are not apportioned. If the vendor has contributed large sums to this, they may choose to incorporate this into the sale price they are prepared to accept.

To avoid unforeseen costs and levies it is important for purchasers to receive legal advice from a legal professional when they are in the process of considering signing an Agreement to purchase an apartment.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.