The capital works fund has increasingly been used for the administrative fund top up.
Leverage has cited a number of strata reports that show the administration fund in deficit. On
inquiry, the strata manager advises that the scheme is run by using the capital works fund.
It doesn’t matter what state you reside in. The administration and capital works funds
[previously the sinking fund] have two distinct purposes. The administration fund is for the
daily management of the scheme. It is calculated by estimating the cost of running the
scheme prior to each AGM [the budget].
The capital works fund should be calculated against
the Capital Works Plan. In other words, there should be enough money put aside each year
to cover what is set out in the Capital Works Plan. Owners corporations traditionally lower their levies, meaning that there are insufficient funds in the administration fund to run the joint, and inadequate funds to pay for maintenance and repairs.
What has become a critical problem in the industry is that owners’ corporations are dipping
their figures into the capital works funds to run the scheme. Every report we have cited,
demonstrates that the owner’s corporation is not following the rules.
Yes, the capital works fund may be used to assist with administration. Nevertheless, to use
the capital works fund, the owner’s corporation must pass a special resolution to transfer the
the money between the capital works fund and administration fund. Further, the resolution
must be accompanied with a repayment plan.
The capital works fund is for ‘capital works’. You can’t just take it! You must have an Annual
General Meeting to pass a special resolution and set out a plan of attack to repay the fund.