The Lowdown on Strata Levies
Tuesday, 06th September 2011
When you bought your apartment you would have noticed a regular payment of fees called a strata levy. Perhaps you make that payment every due date but never really thought about what those fees cover.
Being an apartment owner automatically makes you a member of the owners corporation or body corporate but did you know that the responsibility for your property does not just stop at your apartment's front door. The fees you pay go into the administration and maintenance of your apartment's strata plan.
Legally, your owners corporation or body corporate is obliged to keep the building's common property in a state of good and serviceable repair and the levy you pay partially goes towards the maintenance and administration, while the rest goes to the sinking fund. From time to time you may also be required to pay a special levy...but more on that later.
Does your apartment have a gym, pool, lifts, landscaped gardens, or perhaps even a concierge? To have these facilities, costs money to run, maintain and repair and that money comes from the administration levy.
The amount of levies paid by the owners is decided at each annual general meeting of the owners corporation by majority vote and is supported by a budget. It is also based on the unit entitlements or each owner - the larger the lot, the greater the levy.
The administrative fund covers the day-to-day regular expenses of the scheme. Unless the scheme is self-managed, the strata management company collects these fees on the owners corporation's behalf. The fund covers the following:
- Cleaning of common areas such as entrance
- Utility bills such as electricity and water for common area usage
- Insurance premiums and excesses
- Minor repairs and maintenance
- Building valuations (to ensure the sum insured is kept up-to-date)
- Running costs of the Executive Committee
- Auditing and tax return fees
- Bank charges, GST and other taxes
- Strata management fees.
Every scheme is different and has various needs and requirements so it's impossible to quantify what percentage of the fees each of these items makes up.
A proportion of the fees also go to the sinking fund. This is also a legal requirement for strata schemes and covers planned and unplanned expenditure on maintenance, replacement and repairs in the future. The aim is to alleviate a lack of funds for large-scale capital works, particularly in older buildings.
Having a healthy sinking fund allows schemes to be properly maintained and also adds resale value to all the properties within the scheme.
The sinking fund must be reviewed every five years, which is meant to enable owners corporations to budget better and think about their longer term maintenance plans so they aren't reliant on calling in special levies.
Most owners corporations make recommendations in the plan when setting the amount, but may not stick to these and are not usually expected to, as circumstances may change over time requiring a re-prioritisation of expenditure.
The last levy to discuss is the special levy which is raised when there are either not enough funds in the administrative fund or the sinking fund to pay for expenses which are deemed to be non essential. These could be replacement of carpets in common areas, interior painting or landscaping.
In contrast, essential expenses such as replacing lifts, fixing concrete cancer or upgrading to meet fire safety requirements should be factored in to either the administrative or sinking funds.
Special levies are required from time-to-time or the upkeep of certain parts of the building not covered by the other levies and should be expected by lot owners. Remember, maintaining the building is the responsibility of the owners corporation and is a legal requirement, but not only that, it also enhances the value of the individual units. In today's property market with its highs and lows, anything that reasonable adds value must be music to the ears of owners and investors alike.
Next time the annual general meeting comes around why not look at the budget and see for yourself how the levy is broken down. You may be surprised to see what the costs are and come to appreciate that by you not living in a house where the costs are all borne by the owner, instead, the costs in a unit are divided amongst many owners in apartment living.