NSW legislation update: Finances, legal services & insurance

Issue #3 of 6: Finances, legal services & insurance

The new Strata Schemes Management Act 2015 will come into effect from 30 November 2016.  This Act introduces a new summary financial report known as the “Statement of Key Financial Information” that is to be given to owners as part of the AGM agenda package. Finance-legal-insurance

To ensure greater transparency and due diligence, the PICA Group will continue to provide owners with a more detailed balance sheet and income & expenditure statement.

Here are some additional key legislation changes to note:

Financial management

  • “Sinking fund” will be renamed “capital works fund”.
  • Auditing of financial statements will be compulsory before the AGM is held for both large strata schemes (greater than 100 lots) and those with an annual budget of more than $250,000.
  • When preparing budget estimates for the AGM of large strata schemes, the following is required:
    • Specific amounts for each item of expenditure.
    • Any variances to the 10 year capital works plan (previously known as a sinking fund forecast) for that period and reasons for the difference.
  • The owners corporation is required to follow the capital works plan as far as practical.
  • The annual budget includes items such as contributions raised, any income the owners corporation receives from any other source, capital works and other reserves held by the owners corporation available for its use/spending.

Legal services & debt recovery

  • The strata committee may engage in legal services without general meeting approval, in the following cases:
    • Urgent action is necessary to protect the interests of the owners, and the cost of the expected legal services does not exceed $15,000.
    • The matter relates to unpaid contributions, interest and other related unpaid expenses.
    • The matter requires non-urgent legal services where the cost is less than $3,000.
  • Debt recovery cannot commence until 21 days after notice that action will be taken.
  • The owners corporation should agree to payment plans for up to 12 months in regards to overdue levies and interest.
  • Levies will be due on the later of the date approved at the AGM or 30 days after the date of issue of the levy notice.

Building insurance

  • The method of calculating the replacement building value for insurance has changed. It now includes a 24 month lead time to reconstruct in the event of a total destruction (currently 18 months). We recommend all owners corporations undertake a building valuation by a registered valuer to ensure your building is valued and insured under these new requirements.
  • Strata managers will be required to obtain at least three insurance quotes.  If there are reasons why they cannot do so, then written reasons are to be provided to the owners corporation.
  • Damage to property, death or bodily injury now has a minimum insurance cover amount of $20,000,000 (public liability cover).

Click here for previous communications on the NSW legislation changes.