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.
Here are our top 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 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 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 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 to 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.
This includes fire, lift, pool, 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 on their agreement. They can also tender for lift service agreements on your behalf.
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 (Sinking 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. Also 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.
Stuart Denney is a strata set up specialist and an Associate Director of Strata Plus. He was awarded Strata Manager of the Year in 2014 by Strata Community Australia NSW and was runner up for the award in 2012. Stuart manages more than $2 billion in assets and has forecasted the outgoings for some of Sydney’s most prominent developments.