Why You Shouldn’t Use Reserve Funds to Pay Administrative Expenses

Using Reserve Funds to cover day-to-day running costs, like insurance, utilities, strata management fees or minor maintenance, is poor governance and inconsistent with the intent of the WA Strata Titles Act 1985. While it may feel like a quick fix, it creates deeper financial and compliance problems for the strata company.

Here’s why it matters.

1. The Admin Fund and Reserve Fund Have Different Legal Purposes

Administrative Fund

For recurring operating expenses needed to run the scheme—insurance, utilities, routine maintenance, management fees and similar costs.

Reserve Fund

For capital works and future major expenditure. It is designed to protect the scheme against upcoming big-ticket items, not to cover routine cash-flow gaps.

Using the Reserve Fund for admin expenses undermines long-term planning and violates the purpose of the fund.

2. It Distorts the Scheme’s True Financial Position

Dipping into the Reserve Fund to pay admin bills leads to misleading financial reporting.

a. The Admin Fund looks healthier than it is

Paying admin expenses from the Reserve Fund means:

• The Admin Fund doesn’t show the deficit it actually has

• Owners don’t realise levies were set too low

• The true cost of running the scheme becomes hidden

b. Budgeting issues get masked

If Reserve Funds are constantly used to plug holes:

• Systemic problems, like under-budgeting, goes unnoticed

• Levies don’t get adjusted

• Financial correction is delayed

This “kicks the can down the road”, often resulting in:

• Large special levies later, or

• Reserve Fund shortfalls when major works fall due

  
  

3. It Risks Breaching the Manager’s Fiduciary and Legal Duties

A Strata Manager and the Council of Owners must:

• Act in the best interests of the strata company

• Use funds only for their proper purpose

• Avoid making unauthorised financial decisions
  

Using Reserve Funds for admin costs without the proper authority may breach:

• The Strata Titles Act

• The Strata Management Agreement

• Basic fiduciary obligations

  
  

4. It Bypasses Owners’ Oversight and Proper Governance

Transfers between funds must be authorised by the strata company and properly minuted. A manager or a Council of Owners cannot simply decide to “borrow” money from the Reserve Fund.

Unauthorised transfers:

• Undermine transparency

• Circumvent proper decision-making

• Raise audit and regulatory risks

  
  

5. It Damages Long-Term Planning and Drives Up Future Levies

Reserve Funds are calculated to meet major future works such as:

• Painting

• Roof replacements

• Lift upgrades

• Structural repairs

If funds are siphoned out to pay admin costs, the result can be:

• Sudden, large special levies

• Delayed or cancelled essential works

• Increased deterioration and risk

• Lower resale values due to weak Reserve Fund balances

  
  

6. There Are Proper, Lawful Alternatives

If the Admin Fund runs short, the correct options are:

• A special administrative levy, approved via a vote of all owners, or

• A properly authorised transfer between funds, supported by a formal minuted resolution of the Strata Company

These options ensure transparency, owner control and statutory compliance.

In Summary

Your Strata Manager should never ask the Council of Owners to approve spending from a fund that legally cannot be used for that purpose. A sign of a great strata manager is one that monitors financial trends and alerts the Council early if funding pressures are emerging. With appropriate planning, essential costs, especially insurance premiums, should always be paid from the Administrative Fund.