Fund or No Fund?

Should you opt-out of having a Long-Term Maintenance Fund?

That's easy. Yes. You should.

It could even be regarded as poor governance if you don’t opt-out because having a Long-Term Maintenance Fund will probably mean that the body corporate will collect more levies from owners than it needs.

Notice that Long-Term Maintenance Fund is capitalised. That’s because it’s a thing. A “Long-Term Maintenance Fund” is defined in the Act and because it’s defined, it comes with rules.

The first bullet point above places a restriction on how you use your own cash and the second creates a requirement that's just a plain waste of everybody's time.

Different jars on the mantlepiece

If you have a Long-Term Maintenance Fund (Fund), it’s like having different jars on your mantlepiece to hold the money for electricity and groceries. If you run out of money in the food jar, you can’t use the money in the electricity jar and have to go hungry. That would be dumb. So is having a Long-Term Maintenance Fund.

But I must quickly add that it would be even dumber if you didn’t save up to pay for future maintenance.

Opting out doesn't mean you are foolish

That’s the point that so many people misunderstand. Just because a body corporate has opted out of having a Long-Term Maintenance Fund, it doesn’t mean they are irresponsible. It doesn’t mean that they are not going to build up cash reserves to pay for future maintenance. It just means that they are going to give their cash reserves a different name - like “Maintenance Reserve” - and make up their own rules regarding the use of their own spare cash.

And fair enough. After all it is their property- and their money - and they are grown up.

If you’re still not convinced here are some more things to consider

At the end of the day, long-term maintenance planning and funding is as much to do with cash flow management as it is with maintenance. Good planning avoids having too much owner's money in the body corporate’s bank account - or having the body corporate run out and having to raise special levies.

A good LTMP will help you with this regardless of whether or not you opt-out of having a long-term maintenance Fund.

Summary

So that’s our recommendation. Get yourself a good LTMP and opt-out of having a Long-Term Maintenance Fund.

And of course, build up your reserves so that you don’t need to raise special levies. Ever.

End

Prepared by: John Bradley. August 2016

The complete LTMP solution

  • Cheaper
  • Faster
  • Easier
  • Responsive
  • Compliant template
  • Suitable for developments of all sizes
  • For professionals and DIY'ers
  • Cloud based app

Article Library