June 2, 2023
Our Information and Community Education Unit has noticed the terms ‘committee spending limit’ and ‘major spending limit’ are increasingly being used interchangeably. While it is true that both terms relate to body corporate spending, they are not the same. In this article we outline key information about both of these spending limits, while also highlighting their distinct functions.
Committee spending limit
The committee spending limit is used to determine how much money a committee can spend.
For example, if a committee obtains a quote for maintenance, a committee resolution will generally be sufficient to approve the work if the cost falls within its spending limit.
It is open to the body corporate to set its own committee spending limit if it wishes. To set the committee spending limit, an ordinary resolution of the body corporate at a general meeting is required. No minimum or maximum limit is prescribed under the legislation.
If no committee spending limit is set by the body corporate, it is calculated by multiplying the number of lots in the scheme by $200 – therefore, in a scheme with eight lots, the relevant limit would be $1,600.
The legislation prevents committees from breaking up a single project into separate components to bring costs within a committee spending limit.
If a committee is planning to refurbish the communal gym, for example, it may need to replace worn carpets, repair ceiling fans, and repaint walls. As each of these tasks are under the umbrella of the gym renovation project, the committee must look at the cost of the whole project rather than the individual proposals that make up the project.
Committee spending that is not permitted
It is important to recognise that, even if the cost of a particular proposal is within a committee spending limit, that alone does not constitute an automatic green light for the committee to authorise the spending – there are other considerations.
Arguably, the most significant of these considerations is whether a body corporate has budgeted for the expense. Essentially, funds should be available before a committee can vote to spend them. If there is not enough in the budget for a particular expense, a special levy can be raised to pay for it at a general meeting by ordinary resolution. Alternatively, the body corporate may consider voting to amend its existing budget at a general meeting.
The legislation also sets out ‘restricted issues’ for committees. A committee cannot vote on restricted issues, even if they involve spending within the committee spending limit. For instance, where the legislation specifies that an ordinary resolution, special resolution, or a resolution without dissent is required, the committee cannot approve these motions, as they are general meeting resolutions.
A clear illustration of this point is the distinction between maintenance and improvements. On the one hand, a committee can authorise a motion about maintenance if the cost is within its spending limit and there is provision in the budget. Conversely, if the motion is about an improvement to common property, the cost of the improvement determines which resolution range it falls into – the higher the cost, the more likely it is to require an ordinary resolution or a special resolution at a general meeting.
Spending exceeding the committee spending limit
If the cost of a proposal exceeds a committee’s spending limit, it usually needs to be authorised at a general meeting by ordinary resolution. However, there are situations in which a committee can approve spending above its limit without a general meeting. If all owners have given written consent, or the spending is needed to obtain or renew an insurance policy (and is not a restricted issue for the committee), or if spending has been authorised by an adjudicator to meet an emergency, a committee resolution is sufficient.
A committee can also authorise spending exceeding its limit if it is needed to comply with a statutory order or notice given to a body corporate, an adjudicator’s order, or the judgment or order of a court.
Major spending limit
In comparison, the major spending limit is only used to determine the number of quotes needed when considering a motion. Contrary to common misconceptions, it is not used to determine how much money can be spent.
A body corporate can set its own major spending limit by ordinary resolution at a general meeting. Again, there are no prescribed minimum or maximum major spending limits that can be set. If no major spending limit has been set by a body corporate, it will be the lesser of $1,100 multiplied by the number of lots in the scheme, or $10,000. Therefore, in a scheme with 11 lots, for example, the major spending limit would automatically be $10,000, as it is less than $12,100.
Spending exceeding the major spending limit
If the cost of a proposal exceeds a major spending limit, at least two quotes must be obtained. However, if there are exceptional reasons why it is not practicable to obtain two quotes – for instance, if certain goods can only be obtained from a single source – one quote will be appropriate. The major spending limit needs to be considered when a motion is considered by the committee as well as the body corporate making a decision at a general meeting.
As with the committee spending limit, a body corporate cannot divide a single project into smaller proposals to bring it within the major spending limit. If the cost of the whole project exceeds the major spending limit, two quotes are needed.
Where a proposal that exceeds a major spending limit is being considered at a general meeting, copies of the quotes must accompany the meeting notice circulated to owners, or, if the quotes are too large, summaries of the quotes and information about where the complete quotes can be inspected should be provided instead. These proposals should also be listed on the general meeting agenda as a group of same-issue motions, as the two quotes are proposing alternative ways of dealing with the same issue.
We hope that this article has provided clarity on the distinct functions of the committee spending limit and the major spending limit. It is important for bodies corporate to grasp this distinction, as the incorrect application of these spending limits can result in unnecessary disputes.
This article was contributed by Jane Wilson – Commissioner for Body Corporate and Community Management