Financial Pressures on Owners Corporations in Unprecedented Times

COVID-19 is changing everything about life, work and apartment living as we know it. We’re all focused right now on how to best protect and support our families, friends and communities in the face of this unfolding crisis and our collective thoughts are with those who are affected.

As the wider community moves into lockdown, building occupancy will be at capacity. Buildings may include residents of all age groups and it is likely that everyone will be spending more and more time at home over the coming weeks and months. People will be staying home from work and children will be staying from school.

An Owners Corporation is a community and now more than ever we must exhibit compassion, empathy, understanding, patience, tolerance, consideration and kindness to each other during these unprecedented times. Many in our community are entering difficult and uncertain futures in respect of their livelihoods and their lives.

At Tideways we are seeing the following changes:

  • requirements for increased cleaning and sanitising of high touch surfaces (e.g. door handles, intercoms, exit buttons, handrails and lift buttons)
  • restriction or closure of common area facilities in order to comply with social distancing protocols and latest Government advice
  • additional waste management needs (total capacity, collection frequency, bin and chute cleaning)
  • self-isolated and quarantined residents in buildings
  • increased levels of levy arrears as a direct consequence of owners experiencing or about to experience significant financial hardship

An Owners Corporation has many obligations under the Owners Corporation Act (the Act), including repair and maintenance of common property, ensuring the building is adequately insured, maintaining essential safety measures and providing essential services to lot owners and residents (e.g. cleaning and waste management).

The current Act was written back in 2006, some fourteen years ago, it has become apparent that the current Act is inadequate in providing guidance on how an Owners Corporation can be effectively run and managed during a crisis such as this. We have identified some factors which an Owners Corporation will need to urgently consider and deal with:

  • Penalty interest policy (s29 of the Act)
  • Cashflow protection and preservation mechanisms (e.g. reduce or halt discretionary spending, raise a special levy, take out a strata loan)
  • Cost recovery policy (s30 of the Act)
  • Self-reporting policy, procedure and building action plan for residents with confirmed COVID-19 diagnosis
  • Resident communication plan (content, method, frequency)

An Owners Corporation must act honestly, reasonably and in good faith whilst applying due care and diligence in the decisions and actions it undertakes.

Tideways is adopting a three-step approach to manage the ensuing difficult and uncertain months for Owners Corporations:

1

Implement tactical measures and policies to manage the acute threat to residents and the wider community (e.g. increased cleaning, resident education, increased waste collection or capacity, all measures to encourage social distancing)


2

Introduce predictive cashflow modelling

  • What: Forecast the financial position of the Owners Corporation over the next 6-12 months, factoring historical and projected arrears and essential / discretionary spending.
  • Why: Determine viable options for dealing with any cash shortfall and present these to the committee and/or Owners Corporation members.
  • When: Immediately begin the process of cashflow modelling for Owners Corporations.

3

Schedule a General Meeting as soon as practicable to pass new resolutions or overturn existing resolutions which may be incongruous with the best interests of the Owners Corporation, its members and the buildings residents as they each try to get through the current crisis.


These are unprecedented times and working together with the government and industry bodies will help provide clearer direction as the position changes daily.

What can an Owners Corporation do now?

Understand the extra stresses on the budget:

  1. More people staying/working at home
  2. Social distancing in basements, common areas, lifts etc – restrictions on the number of people in lift means lifts are working longer (therefore requiring more maintenance) 
  3. Need for increased cleaning – touch points like lift buttons, door handles, handrails, mailroom doors, intercoms
  4. Closing common amenities – pools/gyms/spas

Review cashflow and financials of the Owners Corporation and possible solutions to fill any shortfalls.

  1. Monitor arrears
  2. Create cashflow modeling expenditure for 6-12 months 
  3. Look at planned expenditure
  4. Look at discretionary items (carpet steam cleaning, window cleaning, non-urgent maintenance) 
  5. Look at maintenance fund items for the year 
  6. Review when insurance policies will be due and how to ensure there are funds in place to cover the premiums (12month to 6month policy, extended terms, premium funding) 

Carrying out these conversations proactively is important for future sustainability of the Owners Corporation.

Stay safe (whilst practicing social distancing).

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