Strata Management Group

Spending Limits

The interchangeable use of the terms “committee spending limit” and “major spending limit”. While both terms pertain to body corporate spending, it is crucial to understand that they are not identical. This article aims to provide essential information about these spending limits and highlight their distinctive roles.

Committee Spending Limit

The committee spending limit refers to the monetary threshold that a committee can spend. For instance, if a maintenance quote falls within the committee’s spending limit, the committee resolution can approve the work.

A body corporate has the option to establish its own committee spending limit. This requires an ordinary resolution at a general meeting. The legislation does not prescribe any minimum or maximum limits.

In cases where no committee spending limit is set, it is calculated by multiplying $200 by the number of lots in the scheme. For example, in a scheme with eight lots, the applicable limit would be $1,600.

Division of Projects

Legislation prohibits committees from fragmenting a single project into separate components to circumvent the committee spending limit. For instance, if a committee plans to refurbish a communal gym and the project includes tasks like carpet replacement, ceiling fan repairs, and wall repainting, the committee must assess the overall cost of the entire project rather than the individual proposals.

Restricted Committee Spending

It is crucial to note that even if a proposal falls within the committee spending limit, it does not automatically grant the committee authorization to spend. Other considerations come into play. One significant consideration is whether the body corporate has allocated funds for the expense. In essence, funds must be available before the committee can approve their expenditure. If the budget does not suffice, a special levy can be raised through an ordinary resolution at a general meeting to cover the expense. Alternatively, the body corporate can amend its existing budget by voting on it during a general meeting.

The legislation also outlines “restricted issues” that committees cannot vote on, even if they fall within the committee spending limit. For instance, resolutions that require an ordinary resolution, special resolution, or a resolution without dissent in a general meeting cannot be approved by the committee.

A clear illustration of this distinction lies in the differentiation between maintenance and improvements. The committee can authorize a maintenance motion if the cost falls within the spending limit and the budget allows for it. However, if the motion concerns an improvement to common property, the cost determines the type of resolution required. Higher costs are more likely to necessitate an ordinary resolution or a special resolution at a general meeting.

Spending Exceeding the Committee Spending Limit

If a proposal’s cost surpasses the committee’s spending limit, it usually requires authorization through an ordinary resolution at a general meeting. However, there are situations where a committee can approve spending beyond its limit without a general meeting. These include obtaining written consent from all owners, spending necessary for insurance policy procurement or renewal (not considered a restricted issue for the committee), or expenditures authorized by an adjudicator to address emergencies, statutory orders, or court judgments.

A committee can also authorize spending exceeding its limit to comply with a statutory order or notice given to a body corporate, an adjudicator’s order, or a court’s judgment or order.

Major Spending Limit

In contrast, the major spending limit is solely used to determine the number of quotes required when considering a motion. It does not dictate the amount of money that can be spent.

A body corporate can establish its own major spending limit through an ordinary resolution at a general meeting. Once again, no prescribed minimum or maximum limits exist. If a body corporate does not set a major spending limit, it defaults to the lesser of $1,100 multiplied by the number of lots in the scheme or $10,000. For example, in a scheme with 11 lots, the major spending limit would automatically be $10,000, as it is less than $12,100.

Spending Exceeding the Major Spending Limit

If a proposal’s cost exceeds the major spending limit, at least two quotes must be obtained. However, in exceptional cases where obtaining two quotes is impractical, such as when certain goods are available only from a single source, a single quote is acceptable. Both the committee and the body corporate need to consider the major spending limit when evaluating motions.

Similar to the committee spending limit, a body corporate cannot divide a single project into smaller proposals to bring it within the major spending limit. If the total project cost exceeds the major spending limit, two quotes are necessary.

When a proposal exceeding the major spending limit is considered at a general meeting, copies of the quotes must accompany the meeting notice circulated to owners. If the quotes are too large, summaries and information on where to inspect the complete quotes should be provided instead. These proposals should be listed on the general meeting agenda as a group of same-issue motions, as the two quotes propose alternative solutions for the same issue.

Understanding the distinctions between the committee spending limit and the major spending limit is crucial for bodies corporate, as the incorrect application of these spending limits can lead to unnecessary disputes.