Maintenance Fund Investment in Victoria

Investing your strata funds is not a new proposition. Most Owners Corporations have been using primary forms of investment, usually, term deposits, for their long term Maintenance Funds for decades.

The more recent phenomenon of record low returns on term deposits and cash accounts has brought questions about the suitability of these historical solutions to the attention of strata financial controllers nationwide. The question now remains, what other means of investment is allowed under the Victorian legislation?

A Look at the Victoria Strata Legislation

Thankfully, the Victorian regulations allow you to consider other solutions. In rare legal plain speak, Section 26 of the Owners Corporations Act 2006 (VIC) offers owners corporations the ‘Power to Invest Money’ (and that’s it!) in the building’s maintenance fund detailed in Sections 40 through 45.

Unlike NSW and QLD legislation, there appears to be no clear link between the Owners Corporations Act 2006 (VIC) and the relevant Act governing the operation of funds held in trust. Still, by virtue of the fact that owners corporation maintenance funds are held in trust, it is fair to assume that this would also be the case. So off to Part 1 of the Victorian Trustee Act 1958 (VIC), we head for further clarification.

Sections 5 & 6 of the Victorian Trustee Act 1958 (VIC) offers a series of confirmations and considerations when working through some alternatives for your longer-term savings as a trustee:

• An initial review of your trust deed is required to ensure no limitation on the allowable investments above and beyond what is prescribed in the Act.

• Notwithstanding the above, the ability to invest in ‘any form of investment’ and at any time vary any investment is then permissible.

• Exercise the care, diligence and skill that a prudent person would exercise in managing the affairs of another person.

• Implement annual performance reviews of the trust investments

Further Considerations

Like all well-considered investments, Sections 7 & 8 of the above Act details a list of further factors that should be addressed to ensure the validity of the decision when exercising the power of the investment. Here are a few points of note, but not all of them:

• A duty to invest trust funds in investments that are not speculative

• A duty to take advice and the power to use trust funds to obtain this advice

• The purpose of the trust and circumstances of the beneficiaries

• The desirability of diversifying the trust’s investments

• The nature of and accompanying risks of the proposed investment

• The potential for capital appreciation, along with the prospect of capital loss

• The length of the term of the proposed investment against the probable duration of the trust

• Consideration of tax liabilities, likely income return and timing of this income

• The liquidity and marketability (i.e. ability to sell) of the investment

• Costs and fees of the investment – are they reasonable?

• The likelihood of inflation affecting the value of the trust and its investment

In a similar fashion to what is allowable in NSW and QLD, the Victorian legislation is also demonstrative of the allowances for owners corporation committees to consider broader investment options above and beyond the less than desirable cash and term deposit rates.

Conclusion

Given the above, as the financial controller, or member of your owner’s corporation committee, the task now is to confirm that your buildings trust deed does not impede your options, and a professional legal check is highly recommended. Once verified, you can start the search and review what options are in front of you for selection.

You may also find that your Owners Corporation does not have a trust structure arranged or setup. In this case you can also look to invest as a Corporate style account, with a number of nominated signatories in lieu of directors in a corporate trustee. These may be the key members of your committee, and it is advisable to nominate several people that can be contacted or oversee the account in the event of long holidays or periods of absence from committee duties.

Strata Guardian has sought legal advice from a respected national Strata Lawyer on investing with us in Victoria, along with a template Committee motion we can share with you. Please be in touch to receive a free copy.

If you have no experience in the sometimes-hazardous world of investments, there is always help available.

We are happy to say that support is at hand, so if you feel you would like to explore some options, feel free to reach out to Strata Guardian and see if our investment service can help your strata savings diversify away from negative real returns and the prospect of rising strata levies.

Tim Fuller is the Head of Wealth at Strata Guardian. Using over a decade of experience providing sound financial advice to everyday Australians, he shares a passion for simple and effective investments that give clients the confidence they can achieve their goals.