What Are the Levies in Strata Schemes?

Introduction to Strata Levies

Have you ever wondered what those regular payments, known as levies, are used for in your strata property?

Levies are essential for maintaining and managing your strata scheme. These contributions, paid by property owners, ensure that common property and services are adequately funded and can be maintained in a good operating condition for the benefit of all. However, levies can be confusing and frustrating for community members in strata properties, often due to poor management, planning, and communication. This article explores the different types of levies, how they are calculated, and the responsibilities of owners within strata schemes to put you in the know.

Types of Levies in Strata Schemes

Strata schemes primarily rely on three types of levies:

Administrative Fund Levies: For day-to-day expenses like pest control, utilities, and cleaning services.

Capital Works Fund Levies: For long-term maintenance and capital expenditures such as major repairs or upgrades.

Special Levies: Raised for unexpected expenses or when the regular funds are insufficient.

Understanding what each type of levy covers can help owners better manage their financial contributions and anticipate future expenses.

How Levies Are Calculated

Levies are calculated based on the schedule of unit entitlements assigned to each property within the strata scheme. The unit entitlement reflects the value of your individual property (lot) relative to all other lots in the scheme. For example, if a scheme of 10 lots raises $10,000 in levies and each lot has ten equal entitlements, each property owner pays $1,000 annually. The percentage applied per lot, therefore varies according to the schedule for your overall scheme and, of course, any special conditions which may apply.

In some cases, alterations to a lot that increase insurance premiums or the addition of extra storage space may result in higher levies for the owner of that lot.

Note, too, that the term used for unit entitlement does vary across our Australian jurisdictions. In Victoria, levies are calculated on unit liability, however the same principles apply.

Annual General Meeting and Levy Approvals

Levy amounts and payment schedules are typically determined and approved at the Annual General Meeting (AGM) of the owners corporation. During the AGM, owners review past financial performance, approve budgets for projected expenses in the upcoming year, and, where necessary, apply levy adjustments. This process ensures transparency and allows owners to participate in financial planning. The decisions of the meeting are captured in minutes, so you can refer to them to see what applies in your body corporate.

Purpose of Administrative Fund Levies

The administrative fund covers regular, recurring expenses necessary for the day-to-day operation of your strata scheme. This may include, although is not limited to, expenses such as:

• Pest control
• Plumbing and electrical repairs
• Gardening and landscaping
• Cleaning and waste management
• Utility bills for common areas

These funds ensure the strata scheme can run smoothly and remain in good condition, providing a comfortable living environment for all residents.

Understanding Capital Works Fund Levies

The capital works fund, also known as the sinking fund or maintenance fund, is reserved for major repairs and capital expenditures, such as:

• Painting and refurbishing common areas
• Structural repairs
• Replacing shared facilities like gym equipment or pool maintenance
• Upgrading essential systems such as elevators or security

The fund ensures that there are resources available for significant, often costly, projects that arise less frequently. Planning for these expenses through the capital works fund helps avoid the need for large, unexpected special levies.

Special Levies and Their Uses

Special levies are raised when unexpected costs arise or when there are insufficient funds in the administrative or capital works funds. These can be for emergency repairs, legal fees, or significant upgrades. Special levies are often collected in a lump sum to address immediate financial needs. They are typically approved during AGMs or extraordinary/special general meetings, ensuring that all owners have a say in the decision.

Payment Schedules and Deadlines

Levy payments are usually divided into quarterly instalments, though the frequency can be decided by the body corporate themselves. Owners typically have 30 days from the date of notice to pay their levies. Timely payment is crucial to avoid penalties and ensure the smooth operation of the strata scheme. Failure to pay levies on time can result in interest charges, currently at a rate of 10% per annum. Persistent non-payment may lead to legal action.

Consequences of Non-Payment

Failure to pay levies can result in:

• Accumulation of penalty interest
• Legal action to recover unpaid amounts
• Potential impact on the owner’s credit rating
• Increased financial burden on other owners to cover shortfalls

Non-payment of levies can lead to significant financial and legal consequences, emphasising the importance of timely payments. If an owner is facing financial hardship, it is advisable to negotiate a payment plan with the owners corporation . Self-managed strata schemes often seek assistance from strata managers to help streamline the levying and debt collection process.

Tips for Managing Strata Levies Effectively

Budgeting: Plan and budget adequately for levy payments as part of your regular financial management.

Attend AGMs: Participate in AGMs to stay informed about financial decisions and have a say in levy determinations.

Maintain Records: Keep accurate records of all levy notices and payments.

Payment Plans: If facing financial difficulties, negotiate a payment plan with the owners corporation early.

Stay Informed: Understand the purpose and allocation of funds to ensure you are aware of how your contributions are utilised.

By understanding the different types of strata levies and their purposes, and by staying actively involved in the financial management of the strata scheme, owners can contribute to the successful management of their community. Effective management of strata levies ensures that the value of your asset is protected and that the financial health of the strata scheme is preserved.

Contact ACE

Please remember the above is general advice, if you have any questions about what is applicable in your state/territory, or need assistance with managing your strata levies, ACE  is here to help. Our team of experienced professionals is dedicated to providing comprehensive and personalised strata management services. Contact us today.