By Clint Riddin
Resulting from this article, some readers took this advice. However, in so doing some of them raised a very interesting point: What about the budget and levies?
Every body corporate must have a budget for each financial year and this budget year must run concurrently with the financial year of the scheme (PMR 31(2A)). The PMR’s require that the budget must be prepared before the start of the financial year (PMR 36(1)) and the members in the annual general meeting must approve this budget (PMR 31(2)). However, this all takes place some time into the new financial year, given that the annual general meeting must be held within four months after it ends and that meeting can only be called after the signed audited financial statements have been finalised so that they can be sent out with the notice of the meeting.
The arrangements described above on their own raise a number of debates, but we can leave these for another article. After the annual general meeting the levies are determined by the trustees from the approved budget and owners are, within fourteen days after the meeting, advised what they must pay. (PMR 31(3)). So it should be clear to readers that levies are not just a continuous monthly charge and that carries on indefinitely and is just increased by a percentage each year.
The real position is that once the financial year and budget year has ended, so too have the levies that were raised for that budget year. It is a pity that the recent amendments to the PMR’s did not achieve their intended effect, which was to allow trustees to approve the new budget before end of the current financial year. Unfortunately the amendment was poorly thought through and worded, so the AGM still has to finally approve the budget. The issue of the levies remains in limbo after the end of the financial year and pending the AGM.
In practice most schemes’ trustees do raise levies on the basis of the new budget approved by owners. In most instances, this is communicated to owners as a percentage increase on the previous monthly levy. In reality it is a new levy, applying the PQ to the total amount owners have agreed is needed to run the scheme for the year. The trustees in some schemes raise a special levy at the end of the financial year to last until the new levies approved at the AGM are implemented. Others just increase the amount of the invoices on the basis that the increased amount will be payable once the budget is approved by owners at the AGM. Whatever the approach, the result is that generally the schemes have the income needed to run their operations.
This then leads us to the problem under consideration: What if the body corporate changes the financial year end from February to April or May; there are now two or three extra months of additional expenses, and where is the income needed to cover these?
The budget year has ended, and so too the financial year. Here, where the trustees need to cater for a financial year that is in effect longer than 12 months, the solution is relatively simple. The trustees should treat the expenses as unforeseen and unbudgeted and they can then use the provisions of PMR 31(4B) to raise a special levy to cover the shortfall.
The trustees or the owners at a general meeting may also decide to shorten the financial year so that there will be fewer than 12 months, for example changing the financial year end from the end of February to the end of October in the previous year so that there are only eight months. I suggest that in this case the trustees should consider the levies for any “excess” months to be uncollectable. This should be written off, as the relevant expenses will be covered by the new levies implemented after the annual general meeting.
There are possible complications, for example when levies are not raised to run over more than one financial year or are raised for some particular purpose. However if the trustees apply the principles I have explained, the body corporate will not be out of pocket or have uncollected levy claims.
Article reference: Paddocks Press: Volume 09, Issue 07, Page 3.