What common property expenses do strata levies cover?
How are the strata levy payments used by the owners corporation?
Incoming money from levy payments are allocated into three different types of strata funds managed by the owners corporation: administrative fund, capital works fund (previously called a ‘sinking fund’), and special levies.
- Administrative fund
These levies cover the day-to-day expenses incurred in community living arrangements, and include costs such as insurance premiums, cleaning, gardening, electricity, plumbing, fire inspections.
- Capital works fund
This is for capital expenses (major works) such as repainting common property, renewing or replacing fixtures and fittings that are part of the common property such as repairs to balconies, or pathways.
- Special levies
These are levies that are raised by owners corporations when there is not enough money in the capital works fund to cover emergency, unexpected or planned upgrade expenses.
Why do I pay more strata levies than my neighbour?
The individual levies paid by each lot is determined by the unit entitlement for your lot as set out in the schedule on the registered strata plan.
Unit entitlement determines the proportion of ownership a lot holder carries in the whole of a development, including common areas. They quantify both the legal and financial rights and obligations of property owners within strata or community living.
Unit entitlement is based on the market value of the lot at the time of registration of the strata plan, so generally, the larger the lot, the more unit entitlement it has, and the higher the levies for that unit.
How are strata levies calculated?
Strata levies are initially calculated by a qualified and experienced quantity surveyor or property valuer. It is their job to assess all the possible outgoings, prepare a schedule of the costs, and determine the amount of levies payable.
Following the initial determination, levies are calculated at the annual general meeting (AGM) by the owners corporation or bodies corporate.
To set the levies, a budget must be given which shows the current financial situation and any estimates of payments to be made and received.
The budget must be distributed with the notice of the AGM, or tabled at the meeting before voting on the levy motion.
The motion to set the levies must be approved by a majority vote.
Why do levies vary building to building?
If you live in a small strata scheme that has been consistently maintained, and it has no lift, pool or other amenities and minimal gardens, then your levy payments should be relatively low. If you live in a high-rise apartment with elevators, on-site security, a gym, sauna, swimming pool, tennis court, and other facilities, then you can likely expect to pay more.
However, there can be more factors at play that goes against this logic.
Less-visible costs for ongoing internal infrastructure upkeep can also be expensive. These include air conditioning, elevators, internal lighting, hydraulic pumps. For example, lift maintenance can equate to around $6,000 per lift.
The single largest expense for all strata schemes is generally insurance, so if your property has had multiple insurance claims, then this may drive up the cost for your annual insurance premiums.
If your committee has kept on top of preventative maintenance then costs can be controlled, however if maintenance has been left to chances, then costs can spiral out of control and push levies up.
Older buildings may have higher costs associated the need for more frequent repairs. Newer buildings may not have as much maintenance but may have more infrastructure and amenities to keep up with.
Your strata scheme may also have been the subject of legal action or owners who haven’t paid their levies in the past so your strata levies may also be going towards paying a debt instead of improving the property.
If you’d like to find out more on managing the financials for your strata property, download your free Community Living guide on strata financials. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.