​ AGM delays could leave body corporates in a financial fix

02 September 2020 | Web Article Number: ME202020365

Accounting/Administration & Taxation
Property – Commercial & Industrial

PROPERTY owners in bodies corporate and other residential schemes could face unexpected annual levy increases of up to 10% because of COVID-19.

That’s the warning from Michael Schaefer, CEO and founder of specialist financial finance provider ZDFin.

“Many Annual General Meetings (AGM’s) have been delayed as a result of COVID and this could have potentially big impacts on the budgets and financial well-being of residential community schemes,” said Schaefer.

Legislation prescribes that an AGM must be held within four months of the financial year-end for Sectional Title bodies corporate and within six months for Home Owners Associations.

​ AGM delays could leave body corporates in a financial fix
Michael Schaefer, CEO and founder of specialist financial finance provider ZDFin

“We anticipate that managing agents and trustees will be grappling with the holding of AGMs - challenging at the best of times. AGMs are important for a multitude of reasons, one being it is typically where the budget, for the effective operational management and maintenance of the scheme, is approved.”

The practical implication of the delay is that budgets are only likely to be approved well into the new financial year, meaning income remains static but costs do not. Schemes often get into financial distress because members typically produce budgets that are too lean and overlook arrears - which are seldom budgeted for from a cash flow perspective.

Schaefer said legislation allows for trustees to increase levies up to a maximum of 10% without owner approval.

“All schemes that have passed their financial year-ends and have not had an AGM, due to COVID or other reasons, should at least pass an automatic inflationary increase to guard against financial slippage and cost creep.”

He said the economic impact of COVID was a timely reminder to all owners in body corporates or community property schemes to take stock of the expenses on their buildings. Owners are entitled to any information relating to the finances of their building and they should take an active interest in this.

Schaefer said that people widely accept that there will be an annual levy increase. “You have to keep pace with the operational and maintenance costs on a property. Contractors, cleaners and security guards all have to be paid.”

He cautioned against falling into the easy trap of delaying or cancelling planned maintenance at this time. “Owners are often put off because they think they can’t afford the maintenance, but it needn’t be cost-prohibitive, it can be smartly financed leading to savings, that in the longer term far offset the initial outlay.

“Trustees are often unaware of the scope and complexity of maintenance work. My advice would be to get a proper assessment of what your building needs,” he said, adding that ZDFin would do an assessment at no cost, using professionals, to determine what essential maintenance is required.

“Trustees need credible and independent information to make the right decisions and fulfil their fiduciary responsibility. It has to be done. Think of the cost of not doing the right thing.”

Related Articles