[200William-EC] Fwd: Funding Major Works

[Diana Dennison]

---------- Forwarded message ----------
From: Stratasphere by STM <news at stratatitle.com.au>
Date: 6 June 2013 11:45
Subject: Funding Major Works
To: didee at zip.com.au


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  Edition 9 - 2013      Funding Major Works

    *Part 9 of 12 in Effective Governance for Executive Bodies of Strata
Communities*

In strata management there are three options for a committee faced with the
responsibility of funding major capital works.

1. Save progressively by making contributions to a separately levied
sinking fund each quarter;
2. Strike a special levy when required; and
3. Borrow funds in the name of the strata community.

The most common method is the first. Most states compel five to ten year
forecasts for capital works and some states require this to be funded
progressively.

This is the fairest way for apportioning costs between new and old owners.
If sinking fund levies are not funded annually, then new owners are
disadvantaged. They are forced to pay for the neglect of the former owners.

Special levies are always inconvenient for most owners. As an aging society
with many older people who are asset rich but cash poor, special levies are
traumatic for strata communities and their members. Usually, work can’t
start until all of the money is received and it may take some time to
recover money from unhappy or impecunious owners.

Borrowing involves finding a lender who will lend to a strata community
without security. Almost all legislation prohibits a strata community from
giving security over common property. Some lenders will lend to a strata
community on an unsecured basis because there is a statutory liability on
the strata community to levy with fees that are necessary to meet the
obligations of the strata communities. In the event of a default the lender
could have an administrator appointed to levy and recover the funds
necessary to repay the loan. Funding will come at a premium to normal
borrowings because of the unusual nature of the security. The borrowing
costs may be tax deductible for letting owners.

Although borrowing is a relatively new option, very few strata communities
use this option. Most find the best method is to pay progressively and
update forecasts annually to take account of inflation. This avoids the
need for special levies when the work needs to be done.

*Next week: Sharing facilities with other strata communities *


       Kind regards,

*Roderick Smith*
General Manager              *Stratasphere - Creating strong committees and
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