💰 Can a Strata Company Raid Its Reserve Fund to Pay the Insurance Premium?

It’s a situation that can arise surprisingly easily.

The annual insurance premium falls due. 🏢There isn’t enough money in the Administrative Fund to pay it. 😬But there’s a healthy balance sitting in the Reserve Fund. So, can the Council simply transfer money from Reserve into Admin and pay the premium?

A recent WA District Court decision provides some very useful guidance — and strata managers and Councils should take note. ⚖️

📚 The case

In The Owners of 875 Wellington Street Strata Plan 13599 v Kamil [2026] WADC 72, the District Court of Western Australia considered, among other things, the financial obligations of a strata company and the movement of money between its Administrative and Reserve Funds.

The case involved transfers from the Reserve Fund (referred to historically as the “Sinking Fund”) into the Administrative Fund, including a transfer of $120,000.

The judgment is important because it reinforces a fundamental principle:

💡 The Administrative Fund and Reserve Fund exist for different purposes.

They are not simply two pots of money that can be dipped into depending on which one happens to have cash available.

🧾 Where should insurance be funded from?

Under section 100(1) of the Strata Titles Act 1985 (WA), the Administrative Fund exists to meet the strata company’s administrative expenses.

That includes the payment of insurance premiums.

The Reserve Fund, under section 100(2), has a different purpose. It is intended to accumulate funds for contingent expenses and other major expenses of the strata company that are likely to arise in the future.

That distinction matters.

If a strata company has not raised enough Administrative Fund levies to meet its insurance premium, the problem is fundamentally an underfunded Administrative Fund.

Having $100,000, $200,000 or $500,000 sitting in Reserve doesn’t automatically make that money available to fix the Admin Fund shortfall.

🏦 “But we can just transfer it back later…”

This is where the judgment becomes particularly interesting.

The Court considered resolutions allowing money to be transferred between the Administrative and Reserve Funds when required.

Cleary DCJ emphasised that the funds are separate and exist for separate purposes.

The Court rejected the idea that one fund should be used to “top up” another fund that does not have enough money to meet expenditure falling within its own purpose.

And the Court identified the proper mechanism where insufficient money has been raised:

👉 Raise the additional funds by resolution.

That might mean calling an EGM and asking owners to approve the additional contribution required.

In other words:

🚫 The Reserve Fund shouldn't become the Administrative Fund's overdraft facility.

⚠️ Why does it matter?

There is a very practical reason for keeping the funds separate.

Owners may have contributed substantial amounts into the Reserve Fund because they know major expenditure is coming.

Perhaps the 10-year maintenance plan anticipates:

🏠 roof replacement🎨 external painting🛗 lift upgrades🧱 concrete remediation🚗 driveway replacement💧 major waterproofing works

If Reserve money is quietly moved across every time the Administrative Fund runs short, what happens when those major works become due?

The Court referred to the risk of the “raided fund” being left dry.

That is exactly the governance problem.

Owners approved levies for particular statutory funds based on budgets presented to them. Moving money between those funds to solve cash-flow problems can undermine that budgeting process.

🔥 But there is an important distinction

The decision does not mean money can never move between bank accounts.

The Court considered the $120,000 transfer from Reserve to Admin and looked at what the money was actually being used for.

It related to significant fire-door replacement works following a City of Perth order.

Those works were major and non-routine in nature and were appropriately characterised as Reserve Fund expenditure.

So although the money had physically moved through the Administrative Fund, the underlying expenditure was properly something for which Reserve money could be used.

That gives us an important principle:

🔎 Look at the purpose of the expenditure — not simply which bank account paid the invoice.

Reserve money being used for a legitimate Reserve Fund expense is very different from Reserve money being transferred simply because the Administrative Fund hasn't raised enough money.

🛡️ So what about the insurance premium?

This particular case was not specifically about transferring Reserve Fund money to pay an insurance premium, so we should be careful not to claim that the Court expressly decided that question.

However, its reasoning is highly relevant.

Insurance premiums are an Administrative Fund expense.

So if the strata company hasn't raised enough Administrative Fund levies to pay its annual insurance premium, transferring money out of Reserve simply to cover the shortfall is difficult to reconcile with the Court's reasoning about the statutory separation and purposes of the two funds.

Instead, the question should be:

💬 Why didn't we raise enough in Admin — and how are we going to properly fund the shortfall?

That might require owners to approve an additional levy.

It may not be the most popular conversation to have, but good strata management isn't about finding the easiest pot of money to raid.

It's about making sure owners understand what their scheme actually costs to run and funding it properly.

👥 This is also why AGM conversations matter

When preparing an annual budget, strata managers and Councils should be looking ahead.

If a $60,000 insurance premium is due in February, there needs to be a plan for having $60,000 available in the Administrative Fund in February.

That might mean structuring quarterly levies differently rather than automatically making every instalment identical.

It means talking to owners about cash flow.

It means budgeting realistically.

And sometimes it means having an uncomfortable conversation about increasing levies.

But simply transferring money out of Reserve can hide the real issue rather than solve it. 💸

❤️ Our approach at XO Strata

At XO Strata, we believe owners should understand why their levies are being raised, what those funds are intended to pay for and when significant expenses are expected.

If there's a cash-flow problem, let's put it on the table and talk about it.

If the insurance premium is going to create a shortfall, let's plan for it.

And if more money genuinely needs to be raised, let's explain that to owners and allow them to make an informed decision.

Because your Reserve Fund isn't a convenient emergency overdraft for an underfunded Administrative Fund.

It's money owners have raised for the future of their scheme. 🏢💰

And good governance means treating it that way.

This article provides general information about strata management in Western Australia and is not legal advice. The application of the Strata Titles Act 1985 (WA) will depend on the circumstances of each strata scheme.