What are strata levies?

Strata levies are payments owners are required by law to make for the building’s running costs.

Strata levies are the most misunderstood issue when it comes to strata living. Apartment owners sometimes feel they are being taxed on apartment living, and as the definition of “levy” directly translates to “tax” or fine” it is easy to see why they feel this way.

A better translation for a strata levy is “contribution” as levies are really just a share of what it costs to run all the bits of a building that surrounds a unit. Facilities like swimming pools, gyms, spas, saunas all come at a cost, as do services like gardeners, cleaners, concierge, security, building managers.

However, even if your building doesn’t have all the bells and whistles, there are still substantial costs to its maintenance and operation. How the building is designed and constructed can have a significant impact on your fees, and since no two buildings are alike, it is very hard to gauge whether they are fair or otherwise.

Low strata levies are often a selling point for off-the-plan apartment sales, but they can be a trap if budgets have not been thought-through or if low levies have been set to attract buyers. If buying an apartment off the plan, it’s a good idea to ask for the budget that the levy estimates were derived from. Also, under the new strata legislation due out in 2017, there are measures buyers can take if the advertised levies are found to be inadequate.

Frequently asked questions

How is the strata budget set?

Annually, your owners corporation committee and strata manager assess the financial needs of the property to devise a budget for administrative and maintenance expenses. This budget is then submitted for ratification at the AGM, after which levy contributions are defined and communicated via a levy notice. At the meeting, a motion is presented specifying the exact amount of levies to be charged. Owners have the chance to discuss and seek clarifications during the meeting about budget items. Owners attending the meeting can vote on the proposed levies.

Where do levy payments go?

Your payments are deposited into the owners corporation’s trust account and utilised for the day-to-day operational costs and upkeep of the property. Your strata committee is responsible for approving invoices for your strata scheme. Strata Plus does not retain these funds or independently dictate their use. Our responsibility is to manage the funds as directed by your strata committee.

How are levy amounts established?

Your levy amount is determined by the unit entitlement associated with your property, as outlined in the registered plan of subdivision. This entitlement reflects your lot’s proportion of the total budgeted expenses approved by the owners corporation, which may vary annually based on the evolving needs of the property.The budget detailed at your AGM will provide insights into the projected use of these levies.

Who bears responsibility for outstanding levies?

The legal owner of the lot is responsible for any due levies and charges.

What are special levies?

Special levies are occasionally levied to fund unforeseen expenses that surpass the regular budget. These are raised by the strata manager following the committee’s directives.

What happens if levies aren’t paid within the timeframe?

If the levy is not paid within one month from the due date, interest will accrue at 10% per annum, as stipulated by legislation. The strata manager and owners corporations does not have the legal authority to waive interest. However, the owners corporation can make a general resolution to charge no interest to all owners. The decision to waive interest altogether needs to be considered carefully, weighed with the interests of all owners.

Should levies remain unpaid 30 days beyond the due date, marking the end of the grace period, they will enter a debt recovery phase. At this stage, a debt recovery fee is imposed to offset expenses incurred during the debt recovery process, and this fee is added on top of the accrued interest.

Who receives the interest?

When these levies are not paid on time, interest accrues on the outstanding amount. The interest accrued on unpaid levies is deposited into the owners corporation trust account.

Tips on keeping strata levies in check

Repairs and maintenance

These include costs for plumbing, electrical, mechanical ventilation, garage doors, intercoms, CCTV, pool and lift maintenance, air conditioning, and other plant and equipment. To keep these costs under control, make sure you have a preventative maintenance schedule and service agreements in place. This will help maximise the life of your plant and equipment and avoid costly last-minute repairs. Taking a proactive approach always saves money in the long run and ensures greater safety for visitors and residents.

Cleaning and waste management

These costs include the service fee for the cleaner and their supplies, pest control, external window cleaning and sanitation for waste management facilities. Review contracts every few years to ensure your service providers are in line with market rates and negotiate your cleaning contract to include additional equipment costs such as car park scrubbers.

Administration costs

Administration costs include professional fees for accounting, auditing and strata management, and items such as photocopying, postage, levy notices, and meetings. To keep these in check, ensure your by-laws allow for electronic communications, ensure you have building processes in place, and keep meetings to a minimum.

Insurance

Insurance premiums are one of the most expensive line items in any budget as they cover rebuild costs, machinery breakdown, public liability, compulsory cover for volunteer workers, and office bearers liability. Make sure your strata manager uses a reputable broker to ensure premiums are competitive.  A good broker will go to market annually on your behalf with your insurance requirements.

Onsite services

Onsite services include building management, security guard, landscape gardener and concierge. Review your contracts every few years but remember the lowest price is not necessarily the best option. The aesthetics of the building impacts the market price of your apartment so cutting too much out here could reduce the value of your asset. Also, ensure your suppliers are paying award wages and they employ trained and experienced staff as the liability for their actions may rest with the owners corporation.

Compliance

This includes fire, lift, pool, anchor points, backflow devices, escalator, car stackers and cooling tower certification. Get your testing done as early as possible to allow enough time to review repairs required to issue certification. If your lift is coming to the end of its service contract, it might be a good idea to engage a lift consultant. A lift consultant will review the service conducted on the lift and hold the service provider accountable for their agreement. They can also tender for lift service agreements on your behalf.

Utilities

Utilities include common property consumption of electricity, lift phone lines, and water usage. Look into the potential for an embedded network to get access to wholesale electricity rates or negotiate your electricity supplier contracts as these can vary significantly.

Capital Works Fund

A Capital Works Fund is intended for future replacement of assets. Review the timing of warranties and ensure future expenditure is reflected in the budget. Ensure you have a preventative maintenance plan in place as this will prolong the life of plant and equipment. Engage a Quantity Surveyor to conduct a Capital Works Fund assessment to make informed decisions and better use of the funds.