24 Aug Owners Corporations / Body Corporate Tiers
The size of an owners corporation / Body Corporate is determined by the number of lots it affects. There is a tier classification which determines particular obligations depending on the tier into which an owners corporation falls.
The tier is based upon the number of occupiable lots of the owners corporation. An occupiable lot is one that is ordinarily used for residential or business purposes. A non-occupiable lot is a lot which is a car park, storage lot or a lot not normally used for residential or business purposes.
The tier classification replaces the previous prescribed owners corporation which was determined by the number of lots or the annual budget.
What are the tiers?
- Tier 1: more than 100 occupiable lots
- Tier 2: 51 – 100 occupiable lots
- Tier 3: 10 – 50 occupiable lots
- Tier 4: 3 – 9 occupiable lots
- Tier 5: 2 lots or services only subdivision
The tier into which an owners corporation falls determine obligations regarding financial statements and a maintenance plan.
Preparation of Financial Statements
A tier 1, 2 or 3 owners corporation is required to have its financial statements prepared in accordance with the Australian Accounting Standards.
Audit or Review of Financial Statements
A tier 1 owners corporation is required to have its financial statements audited following the end of the financial year. The audit report is required to be attached to the notice of annual general meeting at which the financial statements will be approved. The auditor must be a registered company auditor, a firm of registered company auditors or a member of an accounting body authorised to conduct audits.
A tier 2 owners corporation is required to have its financial statements reviewed by an independent person who is currently a member of a recognised accounting body following the end of the financial year. It may resolve to have an audit undertaken.
A tier 3, 4 or 5 owners corporation may resolve to have an audit or review undertaken but is not obliged to do so and very elect to do so.
Are there any limitations on the person undertaking the audit or review?
The person undertaking an audit or review of financial statements must be independent of the owners corporation and not have any direct or indirect personal financial interest such as being the owner of a lot affected by it.
A written report must be provided following an audit or review.
Maintenance Plan
An owners corporation falling into Tier 1 or 2 is required to approve a maintenance plan.
What is a maintenance plan?
A plan comprehending:
- the major capital assets for which the owners corporation is responsible;
- which items will require repair or replacement within the next 10 years;
- the present condition of those items;
- when repair or replacement will be required;
- the estimated cost of repair and replacement;
- the anticipated life once repaired or replaced.
Major capital assets are common property for which the owners corporation is responsible and includes
- lifts;
- heating plant;
- cooling plant;
- common property:
- structures including roofs, stairways, balustrades and window frames;
- services such as shared water, gas and sewerage pipes, pumps, drains electrical and telephony infrastructure;
- assets such as fences, pools and water tanks
The plan is prepared by an engineer or a building consultant who has the appropriate experience and competence to assess and evaluate the condition of the major capital assets.
How is a maintenance plan funded?
The plan will set out the anticipated annual expenditure to meet the requirements of the plan. The annual fees (budget) must include an amount sufficient to allow implementation of the maintenance plan.
The approve maintenance plan should allow sufficient funds to provide for the repair and replacement of major capital assets from the annual fees without the need for special levies. Special levies may still arise for unanticipated works or if there is significant cost increase not comprehended by the plan.
When must a maintenance fund be approved?
The tiered classification commenced from 1 December 2021 and a grace period is allowed for the approval of the plan. A tier 1 owners corporation is required to approve the plan by 30 November 2022 and a tier 2 by 30 November 2023. Notwithstanding these grace periods it is recommended an owners corporation which is required to implement a plan does promptly.
What about tier 3, 4 and 5?
A tier 3, 4 or 5 owners corporation may prepare and approve a maintenance plan if it wishes. Whether maintenance plan is prepared will depend upon the complexity and installed infrastructure within buildings. These owners corporations may have the plan prepared but not approve it, using it as a guide for works to be undertaken.
If a plan is prepared but not approved, it is a choice of the owners corporation whether it will include an allowance in the annual budget or strike a special levy or levies when work is required.
Can a maintenance plan be amended?
A maintenance plan can be altered and it is recommended the plan is reviewed at least every three (3) years to ensure it incorporates changes in the costs of repairing or replacing major capital assets.