BODY CORPORATE LEVY INCREASES LETTER FROM AN OWNER

I receive many emails from owners who are shocked at Body Corporate Levy increases at their buildings. The common theme is that they wonder whether they will be able to continue to live in their homes if the fees keep rising.

The latest Letter to the Editor from Jenny states ....
"As a result of the BC increase approved by the Attorney General last Sept our weekly BC fees increased from $110 p.wk to $140 p.wk. When talking to other unit owners in Surfers Paradise there seems to be a general opinion of not having an increase at all. Our BC has recently approved another increase of $10 p. wk to increase the Administration fees due to a works project underway in the building. That increase I can accept but an extra $30 oer week has certainly changed things financially for us. We have been owners here for just over 2 yrs & have seen our BC fees increase by approx $2000 per year. Do you have any advice regarding this? I did contact the Body Corporate Manager about it but was sent an email of totally confusing figures as to how the amounts were worked out. I'm not an accountant so this was useless. Do you know of any other buildings on the Coast that have incurred this sort of increase? Any advice would be hugely appreciated. I am going to visit other owners & get their opinions on this also. Regards Jenny"

In a further email she wrote ....
"....we have reached the opinion now that as much as we enjoy the lifestyle of high rise living it seems it's not going to be sustainable if BC fees can just continue to increase as they do. When we bought this apartment it was after many hrs of doing our  figures & at the time was affordable. However $2000 increase in just 2 years worries us as we now don't know what to expect in the future. We will probably consider selling & moving back into a more affordable life style which was not the plan but needs must."

The fact is that Body Corporate Levy increases in various communities is forcing many owners to reconsider their position in owning units. A combination of factors have resulted in the increases. Some owners are affected by the Levy Equalisation legislation. There is not much that can be done about that now apart from lobbying the Government to change the legislation yet again.

The original concept of setting levies was loosely based on the value and size of the units. The higher you go in an apartment building, the value of the apartment theoretically increased. Therefore, the developers felt that the levies should increase for higher floors. This particularly affected Penthouse owners who, in some cases, paid levies that were double those of owners of smaller ground or lower floor units.

The Penthouse owners argued that levies were purely for maintenance of the Common Property and should be the same for everyone. The recent legislation supports that argument.

Irrespective of whether the legislation is fair or not, owners like Jenny are coming to the conclusion that it is just not viable to continue to pay out crippling Body Corporate Levies. Add the levies to the spiralling Council and Water Rates and owners are wondering how they can afford to live in their homes. See my recent article.

The second factor in Body Corporate Levy increases is something that owners do have some control over. Committees, who represent owners, control spending and the budget. Committees are nearly always unpaid volunteers, many of whom have limited experience in managing substantial budgets. They are usually guided by their Body Corporate Manager and the time the Committee members are prepared to spend is often insufficient to what is needed to be able to monitor and manage a budget.

There are often areas in which cuts can be made in the budget but Committees are very reluctant to propose decreases in Body Corporate Levies. You rarely, if ever, hear of a Body Corporate that has proposed decreases to the Sinking and/or Administration fund. It is particularly difficult to curtail Body Corporate Levy increases in older buildings because maintenance costs usually increase as the buildings start to age. However, if units in Body Corporate Communities are going to continue to be a viable investment for owners, then Committees will have to do everything possible to put a hold on increases to levies.

The problem with that is that it takes time and some skill to be constantly monitoring the financial statements, obtaining quotes for alternative contractors, etc. Many Committee members are simply not prepared to be involved to that extent. I would love to see Committee members starting out the year with a goal of reducing the Body Corporate Levies by, say 5%, but the reality is that levies in Body Corporate communities seem to increase rather than decrease.

Meanwhile, other charges like Council and Water Rates and Electricity continue to rise. For investors who place their apartments in holiday letting this is a recipe for disaster. Their investments become not much more than hefty tax deductions.

As far as Jenny is concerned, my only advice would be to keep appraised of the spending at her building, particularly by looking closely at the financial statements that are provided to all owners prior to AGM's. She should also talk to the Committee members and other owners and explain how the increases are affecting her position and the value of her investment.

Ultimately, owners are fairly apathetic about their investments and many don't get involved. They usually hoped for capital gain when they eventually sold their units but that is something that you can no longer rely on. If owners took the time to analyse the costs of owning their units against the actual value of the unit, many would realise that they have made a very poor investment and that it is better to move on.

New Ways for Body Corporate Managers to make money

Body Corporate Managers are always looking for new ways to make money. In recent years many have started offering additional services to clients but there is growing concern that the promotion of some of these services may constitute a conflict of interest.

In an ideal world, Bodies Corporate should take steps to ensure that they are compliant with all legislation and general rules and regulations. Some Body Corporate Managers have seized the opportunity to exploit this and make money.

The way it works is quite simple. They point out to Committees that  that the Body Corporate needs to get reports on various areas of compliance. They often give veiled threats of potential liability or Committee responsibilities if the reports are not obtained.

They then recommend their own in house services to provide the reports which can include things like:

• Sinking Fund Forecasts
• Workplace Health and Safety Reports
• Fire Risk assessment reports
• Asbestos reports
• Insurance assessments

and many more.

They don't stop there. They also provide services to "assist" owners with Dispute resolution, Levy Equalisation claims and one BC Manager even has a separate department that completes insurance claims at an additional cost of course.

There are often times when BC Managers do everything they can to promote these offshoot services in an attempt to generate more income for themselves. However, the problem that I have with all of this is that I don't see them always offering alternatives.

In one case, the Chairman of a Body Corporate was convinced that he needed to get three reports done urgently on Fire Safety, Workplace Health and Safety and an Asbestos assessment. He was pressured into thinking that he might even be liable if the reports were not done.

The Body Corporate Manager then proceeded to convince him that he should use the services of companies that were subsidiaries of the BC Manager. No alternatives were offerred.

When the reports were completed, they highlighted various issues that needed to be addressed and they offerred yet more "in house" services to rectify the faults.

It is inevitable that Body Corporate Managers will be creative in developing other services for their clients but they need to be very careful indeed to offer alternatives rather than try and convince Committees to go with their own offshoot companies.

An example of the potential problems that can occurr was highlighted in the comments of a QCAT adjudication  .....

“The adoption of the practice of body corporate managers purporting to act both as “experts” and “representatives” in the same case is not one which should be encouraged.”
This case referred to a claim to equalise the levies. The Body Corporate Manager offerred the services of one of their own consultants to represent the Body Corporate.

There is nothing wrong with Body Corporate Managers developing their business and providing additional services to their clients providing that they act ethically and offer alternatives to Committees.
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The opinions expressed in this article are personal commentaries and not intended in to be legal advice in any way. I have spent many years participating on a number of different Body Corporate Committees and provide an owner’s perspective on Body Corporate issues.
If you have any concerns or comments about any of the issues that are raised in these articles please use the form below to contact me.