A Guide to Strata Levies

September 17th, 2015

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If you’ve ever lived in an apartment block or townhouse, chances are you’ve heard of strata levies. But what exactly are they, and what do they contribute to?

While it may seem complex and frustrating, the concept of strata actually makes life much easier for a property owner. Strata help deal with the owners corporation, negotiate and understand by-laws, and manage common areas.

What is a strata scheme?

To understand strata levies, it’s first important to understand what a strata scheme does.

A strata scheme is a building or buildings where owners each own a portion, known as a ‘unit’, but where there is also common property such as gardens, driveways, foyers and windows.

Ownership of the common property is shared between the owners of the individual units.

The main difference between owning a lot in a strata scheme and owning a house is the external elements. Any external walls, windows and the floor are generally not owned by the individual but are deemed common property. This means the maintenance and repairs of these areas are usually the responsibility of the Body Corporate, unlike a house where all maintenance is the sole responsibility of the homeowner.

What are strata levies?

Unit owners in a strata scheme are required to pay a fee to the Body Corporate to cover any financial commitments. The amount and frequency of levy payments are generally decided on an annual basis at the Annual General Meeting.

Financial commitments generally include:

  • Building maintenance
  • Building insurance
  • Maintenance of common areas (including any swimming pools, gyms or tennis courts)
  • Onsite caretaker or cleaner
  • Any common electricity or common water
  • Sinking fund costs
  • Costs for management
  • Any other extraordinary costs that pop up.
  • Monies raised by the levies can be divided into two separate funds: the administrative fund and the sinking fund.

The administrative fund

The administrative fund covers general day-to-day expenditure. The amount must be enough to cover:

  • The cost of maintaining common property
  • Payment of insurance premiums
  • Any other recurring expenses not covered by the sinking fund or special levies.

For example, the administrative fund needs to cover gardening, cleaning, utility bills, running expenses of the owners corporation, management fees, bank charges, and any small repairs such as lights or mailboxes.

The sinking fund

The sinking fund is essentially a large capital expenditure fund. The fund pays for expected and unexpected long-term expenses such as repairs and maintenance (for example, driveway replacement or major external painting).

The sinking fund also needs to budget for any estimated or unexpected expenses such as structural damage due to accident. While these repairs are quite difficult to predict, the sinking fund is expected to have enough money in it to cover them. If not, a special levy must be raised to cover the cost.

Special levies

Special levies are raised when there is an extraordinary expense that cannot or should not be covered by the sinking fund. The most common reasons special levies are raised are to cover major building works, repairs or structural improvements, for example roof tile replacement or a major paint job for the whole exterior.

These levies are paid in addition to existing contributions.

While there are some circumstances where it is accepted to delay non-essential expenses until enough funds are raised by the normal levy payments, it’s important to remember that there are work, health and safety implications of not fixing something. Generally, this is when a special levy is mandatory – if there is a possibility of danger to anyone, then the problem must be fixed and funds need to be raised to address it.

An example of an essential expense is repairing damage to the main driveway or addressing fire safety compliance. Non-essential expenses include things like carpet replacement or landscaping.

How are levies calculated?

To begin with, the Body Corporate (often guided by the strata manager) determines how much money is needed in both the administrative and sinking funds. These amounts must be supported by a budget that is presented to all owners, both at the AGM and then in the supporting minutes.

Owners then vote to either accept or amend the proposed budget. The budget must take into account the amount needed in both funds to cover expected and unexpected expenditure. It must also consider the existing financial situation of the Body Corporate.

Levies are calculated based on each units entitlement. Sometimes all units in a corporation have the same (equal) entitlement. Sometimes entitlements vary based on the size or amenity of each unit.

Other elements that can contribute to the amount include:

  • The size of the building or buildings
  • The age of the building or buildings
  • The amenities (for example, pool, tennis court or gym).

Pools, tennis courts, gyms and lifts generally increase levy costs.

Paying your levy

Levies are generally payable on a quarterly basis, and a notice is issued by the treasurer of the Body Corporate or the strata manager.

Levy notices are generally sent three weeks prior to the due date. This gives owners ample time to plan for and make the payment. However, regardless of whether an owner receives a notice, they are still obligated to pay the levies on time.

For Body Corporates, there is also the option of a Strata Finance Loan. These are generally taken out when work is required but there is an insufficient amount of money in the property’s funds. Generally, this type of loan is also taken out when the work required may develop into something even worse if left.

Unpaid levies

If you cannot pay your levy by the due date, interest is calculated on the overdue amount. Owners who cannot or do not pay their levies become ‘unfinancial’ until the debt is collected and this means you cannot vote in meetings. There are several steps the Body Corporate will take to recover the unpaid levies, including all interest. While at first, a notice will be sent to the owner to request payment of the levy, the matter will be turned over to a debt collector and then a solicitor if the levy remains unpaid. If all attempts fail, the Body Corporate can recover the unpaid levies, in court, as a debt.

Of course, unpaid levies put a strain on all other unit owners, especially if they are required to make up the shortfall. The act of reclaiming the unpaid levies can also cost a lot and this cost is also recoverable from the unit owner.

If required, the Body Corporate may look to implement payment plans to help recover overdue levies. This may occur in the case of financial hardship for unit owners. If you are in this situation, it’s always best to approach the strata manager to discuss payment options, before a situation of unpaid levies even arises.

Strata Data is an award-winning body corporate manager with over 2,500 happy clients. We’re passionate about building better communities and making it easy for body corporates to manage their properties. To find out more, arrange a free proposal now or contact us directly with your questions.