27/05/2019 at 11:24 pm #37850
At our last AGM, I called for a new Capital Works Plan update as it was due and the old one had glaring deficiencies as I could see.
It was professionally done with my assistance as I know my building and all its current and future likely problems.
The report has come back and as I suspected, the capital works component of the the overall levies was far too low.
The report suggests the increase to be at such a level that the quarterly rates for everyone would double.
As you could imagine, I know full well the residents will not agree to such even if I presented them with the facts.
In the end, I think I just have to leave the rates as they are-or at least a little increase- and just strike a special levy
each time a big ticket item needs repair.
I can’t see any other way as I know people wont cop their rates doubling.27/05/2019 at 11:27 pm #37852
There are options between no change and doubling. Perhaps you could have a series of motions: One to increase by 25%, another by 50% another by 75% and another by 100%. If the first motion passes but is immediately superseded by the second but the third fails and the last lapses, then you will have found that a majority support going to a 50% increase, which is better than no funding.29/05/2019 at 8:06 am #37859
Sir Humphrey gave you a good way to test the level where the collective owners feel comfortable in terms of levies. However that solution will give you breathing space for the first year. Perhaps it would be better to propose a scale of increases – is it legal to say 25% this year, then to 50% the next year, until the works are fully funded? Or can you only vote on the first year?
Most people hate the unpredictability of special levies, especially new owners who may not have the forewarning. Obviously unfunded works deter new buyers.
My understanding of the capital works plan is that it highlights all likely future works. It is up to the OC to agree the urgency and the order in which the works are done. Owners may find the levy increases more acceptable if they can see that works are actually being done, and the plan being sensibly reviewed each year.29/05/2019 at 8:18 am #37861
I agree that a good capital works (aka sinking fund) plan has a schedule of anticipated annual levies for the duration of the plan. The levy in any given year is decided by that year’s AGM’s budget resolutions.
The point of the plan is to meet infrequent, lumpy expenses more equitably among owners who come and go by contributing to the fund about the same each year.
So, a variation on what I suggested would be that the plan could include several variations on the schedule of levies to accumulate sufficient reserves of cash for expenses anticipated at various times into the future and the owners could vote on which to use. One might start lower but consequently rises higher later in the plan period. Another might start a bit higher and rise more gradually and yet another might start higher still and stay the same for every year of the plan. If you give people three options, they then tend to go for the middle one.29/05/2019 at 8:33 am #37862
Our Strata has been fairly generous in compiling our Capital Works Plan which we do over 10 rather than 5 years. We could see shortfalls and agreed a 10% compounding increase each year in sinking fund contributions. Not all forecasts have eventuated on time but can’t be dropped, just slipped into the future. This approach works in our Strata. Hope this helps.29/05/2019 at 8:45 am #37865
The timing of some future expenses can be predicted with considerable accuracy while others are uncertain. Something that is likely to need maintenance about every 20 years might be scheduled for 7 years hence because it was last maintained 13 years ago. However, it might turn out to be opportune to get it done with other work at 5 years or it might be still in sufficiently good condition when you get to 7 years that you revise and update the plan to push that item out another 5 years.
It is more important to have an adequately funded plan that covers everything than to be overly pedantic about the detail. I would also recommend having an explicit ‘contingency’ component so that if all goes to plan, there will be some extra in the bank to help you cope if something unexpected happens. That could be an expense that was completely off anyone’s radar or it could be a known expense that suddenly needs to be brought forward.29/05/2019 at 5:26 pm #37874
At our scheme in NSW, where we needed to raise about $5 million over 3-5 years, we elected to have a steady increase of about 8% per year in Capital Works Fund – knowing that may leave us with a possible short fall. However, we also knew that capital works do not always run to schedule – and that has turned out to be the case. So our remediation plan is already a year behind – no fault of anyone, just a big job – but that has given us all a breather.
We have also decided to consider a loan if monies turn out to be insufficient rather than a special levy. But time will tell on that one.
Special levies should be for urgent matters only.