Introduction

An owner corporation holds the significant responsibility of managing funds collected through strata levies, a core function governed by the Strata Schemes Management Act 2015. A fundamental principle of strata law dictates that all expenditure must be for the collective benefit of all lot owners within the strata scheme, ensuring that decisions serve the entire community rather than a select few.

Navigating the financial obligations of a strata scheme can be complex for both the owner corporation and its strata committee. This guide provides essential clarity on the spending limits, procedural rules, and the crucial legal concept of the ultra vires doctrine, which defines when spending is beyond the corporation’s power, helping committee members and owners understand their financial governance duties.

Ultra Vires Doctrine in Strata Law

The Legal Principle of Benefiting All Lot Owners

In strata law, an owner corporation is permitted to manage the strata scheme exclusively for the benefit of all lot owners collectively. This core principle ensures that decisions and expenditures serve the entire community, not just the interests of a dominant group or a select few.

The fundamental requirement is that an owner corporation must act in ways that benefit the entire ownership community. As a result, they are not permitted to authorise payments that only serve individual interests or specific subgroups within the strata scheme.

When an Owner Corporation’s Spending Is Beyond Its Power

When an owner corporation acts beyond its legal authority, its actions are considered “ultra vires,” which means “beyond the powers.” This legal doctrine has specific applications in strata management:

• A payment is deemed ultra vires if it does not provide a benefit to all lot owners within the strata scheme.
• In such cases, a tribunal can invalidate the resolution that authorised the payment.
• This invalidation confirms that the owner corporation did not have the power to approve the expense in the first place.

The principle was clearly demonstrated in the case of Lawson & Clarke v Owners Corporation SP 61788, where:

• The tribunal invalidated a resolution to pay a large sum for the Chairman’s legal expenses.
• The payment was determined not to benefit all lot owners.
• This established an important precedent that even properly passed resolutions can be overturned if the expenditure is ultra vires.

This case reinforces the fundamental requirement that all actions and expenditures by an owner corporation must serve the collective interests of the entire strata community.

Key Legislative Spending Limits for an Owner Corporation

The Requirement for Two Independent Quotations

Under Section 102(1) of the Strata Schemes Management Act 2015, an owner corporation must obtain a minimum of two independent quotations for any proposed expenditure on a single item or matter exceeding $30,000. These quotations must come from genuinely independent and unconnected suppliers to ensure fairness and transparency.

It’s important to note that an owner corporation cannot circumvent this rule by artificially dividing a single project into multiple smaller stages to keep each component under the $30,000 threshold. This requirement applies to various project components, including:

• Consultancy fees for investigation
• Supervision costs
• Primary construction or rectification works

Budgetary Spending Restrictions for Large Strata Schemes

For strata schemes classified as large, Section 102(3) of the Strata Schemes Management Act 2015 imposes specific budgetary restrictions. In such schemes, the owner corporation cannot spend more on any single item than:

• The amount allocated for it in the budget estimates, plus
• An additional 10% of that allocated amount

This limitation ensures financial discipline and adherence to the budget approved by the owners. However, this spending cap can be removed, either for a specific item or generally, by passing a resolution at a general meeting.

Special Considerations for Emergency Spending

The standard legislative spending limits do not apply to expenditure required for emergency purposes. Section 102(5) of the Strata Schemes Management Act 2015 provides exceptions for urgent situations that threaten the safety or security of the building and its residents.

Examples of situations that qualify as emergencies include:

• Burst or blocked water and sewerage pipes requiring immediate attention
• Serious damage to the property caused by storms, fires, or other natural disasters
• Unexpected failures of essential electrical or security systems
• Significant glass breakages that compromise the building’s security or could lead to internal damage

How Spending Limits Apply to the Strata Committee

Understanding Restricted Matters for a Strata Committee

While a strata committee can make decisions on the day-to-day running of the strata scheme, its authority is not unlimited. The owners corporation can restrain the types of matters the committee decides and can overrule its decisions; understanding how strata committees work and their decision-making powers is essential for effective governance. Certain significant decisions are classified as “restricted matters” and are reserved for the owners corporation to decide in a general meeting.

A strata committee is not authorised to make decisions on several key issues, including:

Restricted Matter	Decision Requirement
Setting Levy Contributions	Must be approved by an ordinary resolution of the owners corporation.
Improving Common Property	Requires a special resolution at a general meeting for any enhancement or improvement.
Exceeding Budgeted Spending	Cannot spend more than 10% above the budgeted amount for any single item unless previously approved by an ordinary resolution.
Approving By-laws	Changes must be passed by a special resolution of the owners corporation.
Terminating Key Contracts	The decision to terminate a strata manager or building manager must be made by an ordinary resolution.
Obtaining most Legal Services	Engaging legal services that require payment generally needs the approval of the owners corporation, with specific exceptions.

Furthermore, under clause 9 of Schedule 2 of the Strata Schemes Management Act 2015, a decision made by the strata committee has no effect if owners holding more than one-third of the total unit entitlements give notice to the secretary that they oppose the decision before it is made.

Rules for a Strata Committee Obtaining Legal Services

Under Section 103 of the Strata Schemes Management Act 2015, an owners corporation or strata committee must not obtain legal services requiring payment unless it is approved by a resolution at a general meeting. This approval must specify either unlimited costs or a maximum cost for the services, a change introduced by the Strata Schemes Legislation Amendment Act 2025 to increase transparency.

However, there are specific exceptions where a strata committee can obtain legal advice and take legal action without approval at a general meeting. These situations include:

Situation / Exception	Rule for Obtaining Legal Services without a General Meeting
Urgent Matters	The committee can approve legal services up to a cost of $15,000 when urgent action is required to protect the owners corporation’s interests.
Non-Urgent Matters	The committee can authorise legal services with costs not exceeding $3,000.
Preliminary Advice	The committee is permitted to obtain initial legal advice before commencing legal action.
Recovering Unpaid Levies	Approval is not needed to take legal action to recover unpaid strata levies, interest, or related expenses.

Case Studies on Improper Spending by an Owner Corporation

The Lawson & Clarke Case Invalid Payment for Legal Fees

The principle that an owner corporation must act for the benefit of all owners was tested in the case of Lawson & Clarke v Owners Corporation SP 61788. In this matter, the owner corporation had passed a resolution authorising a significant sum of money to be paid to the Chairman for legal expenses related to the strata scheme.

The Tribunal’s determination was clear:

• The payment did not benefit all lot owners collectively
• The expenditure was deemed “ultra vires,” meaning it was beyond the legal powers of the owner corporation
• The resolution was invalidated, confirming that the owner corporation lacked the authority to approve such a payment in the first place

Conclusion

An owner corporation’s spending is strictly governed by the Strata Schemes Management Act 2015 and the ultra vires doctrine, which mandates that all expenditure must benefit every lot owner within the strata scheme. This principle is reinforced through specific legislative limits, restrictions on the strata committee’s authority, and legal precedents that invalidate improper spending.

These complex financial responsibilities requires a clear understanding of strata law to ensure compliance and fairness. For trusted expertise, contact the specialised strata lawyers at PBL Law Group to ensure your strata scheme’s financial governance is managed correctly.

Frequently Asked Questions