General services charges increased by more than CPI

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Residents committees need to consider this issue when they are reviewing the draft budget for the upcoming financial year to ensure that it is compliant with the requirements of the Act.

At the written request of the residents committee the scheme operator is obliged to give the residents committee a copy of the draft budget at least 14 days prior to the beginning of the financial year.

Definitions

CPI – The All Groups Consumer Price Index for Brisbane. (s 106(2) of the Retirement Villages Act 1999 )RV Act))

CPI percentage increase – This is the percentage increase in CPI between the March quarters immediately before the start of the budget year being reviewed, and immediately before the prior financial year. (s 106(2)) (Note 1)

General Services Charges – This is the sum of the cost of supplying all general services to the village. Each villa must pay its proportion of the total general services charges which is usually collected on a fortnightly or monthly basis.

Total of General Service Charges (TOGSC) means the General Services Charges as defined above, less:

  • a charge for a general service that has been increased by more than the CPI but that has been approved under a special resolution by the residents. (s 106(2)(a))
  • a charge that is allowed under s 107 of the RV Act to increase by more than the CPI, for example, rates and taxes, salaries and wages, insurance and Maintenance Reserve Fund contributions. (Note 2).

General Service Charges increased by more than CPI

For the exemptions mentioned above, budgeted expenditure can exceed the increase in the CPI. These costs are likely to be a significant proportion of General Services Charges.

If the TOGSC budgeted increase does not exceed the CPI the budget is compliant with the Act. It is possible that individual general services charges within TOGSC may exceed the CPI but if they are offset by others which are lower than the CPI then the budget is still compliant if the TOGSC does not exceed the CPI.

If the TOGSC exceeds the CPI then the budget is not compliant. In this case residents could arrange to approve selected charges by a special resolution to bring the budget into compliance. In these circumstances it would not be necessary to approve all line items which exceed the CPI, only enough to bring the budget into compliance.

Note also that in preparing the budget, any surplus or deficit from the previous financial year must be carried forward and considered in adopting the general services charges budget for the next financial year. This may also be a factor in assessing whether or not the CPI requirement is met.

Failing these options, the scheme operator must review the budget and resubmit a compliant budget to the residents committee.

If an increase in a particular general service is proposed, the scheme operator must consider whether there is a more cost-effective alternative to  the general service.

Notes

Note 1.  A further revision of the RV Act is underway which will specify the March quarters. It is not sufficiently clear in the current Act

Note 2. The next revision is expected to exclude the current exemption for the Maintenance Reserve Fund contributions from these items.