If there is no “line item” in the Sinking Fund Budget for expenditure, can the funds be spent?
A number of Committee Members, and Owners for that matter, are under the impression that for works to proceed a “line item” must be included in the sinking fund budget.
The confusion may come about due to the wording of the BCCM regulation module noting “If a liability arises for which no, or inadequate provision, is made in the budget, a special contribution must be raised” and how this is interpreted. An article, written by Jason Carlson from Grace Lawyers deals with this issue, including his view on how this section of the regulation should be interpreted. There is a link below to this article.
In an adjudicators order referenced in the article written by Jason, Evolution Apartments, a lot owner sought an order from the Commissioners Office that foyer refurbishment works not be permitted to proceed on the basis that the works did not form part of any forecast or the sinking fund budget and that all funds held in the sinking fund were raised for purposes described in the sinking fund forecast.
The adjudicator noted – in response to the comment made by the applicant, from an order made for Parkwood Villas;
The legislative provisions clearly indicate that the budgets contain ‘estimates’ of necessary expenditure. There is no suggestion in the legislation, either in the provisions relating to the budgets or relating to the control of spending, that budgets set the limit of expenditure on any line item or that spending cannot be approved on any specific project if that would put the spending on that budget line item above the budget estimate for that item. The reality of budgeting is that some items will be overestimated and some will be underestimated, because in some areas it can be legitimately difficult to estimate what expenditure may be necessary.
They further noted:
There is no requirement that funds must be ‘allocated’ for a specified purpose, nor any requirement to raise a special levy for an unbudgeted expenditure if there are otherwise sufficient monies in the funds
The request from the applicant to have the Sinking Fund Budget declared invalid & the motion for the works be declared void and of no effect was dismissed.
The full order can be read here.
Read Grace Lawyer’s take on this subject here