How levies, strata management fees, and owners corporation or body corporate admin and sinking funds help protect your property.
The Australian property market continues to evolve, with more opportunities opening than ever before. For many people, investing in a strata, owners corporation, or body corporate property offers several advantages such as lower costs, simplified management, and enriching lifestyle opportunities.
When you purchase a lot, you become part of the body corporate and must make financial contributions to the upkeep of the shared common property through strata levies and owners corporation or body corporate fees. But where exactly does this money go?
Every owner naturally wants their property to be well-maintained and cared for. However, sufficient money needs to be allocated to body corporate admin and sinking funds for the upkeep of buildings, on-site facilities, and common property.
While levies and fees might initially seem like an added, continuous expense, they play a crucial role in providing the necessary funds to keep properties in top shape and continue to serve the needs of the owners maintenance costs.
You’re no stranger to levies if you’re part of an owners corporation or body corporate. The first annual general meeting (AGM) is where owners decide and set the amount that each lot pays. All owners often make quarterly financial contributions towards the general expenses associated with managing and maintaining the property. But what do strata levies cover?
It’s important to understand what is included in your strata levies and the types of funds and fees. Along with day-to-day building maintenance, adequate levies are necessary to keep the viability and sustainability of the property over time. Whilst low levies may seem enticing, they can often lead to higher and unexpected costs in the long run.
Although each owner’s pay may vary due to different unit entitlements and building requirements, strata levy structures are relatively consistent.
(also known as a sinking or maintenance fund)
Alongside the owners corporation and body corporate admin and sinking fund, additional costs may arise for properties that use third-party management services or special levies to cover unforeseen expenses.
In the sections below, we’ll delve further into the different purposes for levies and fees, how they are distributed, and their role in protecting and operating your property.
The strata administration fund accounts for most ongoing costs for the upcoming twelve months, including all building administration and strata management fees. These fees are used for day-to-day tasks such as running and maintaining the building.
The budget set aside for the owners corporation or body corporate administration fund is calculated based on the expenses and unexpected costs from the last year and considering any additional increases or planned expenditures for the upcoming twelve months. Generally, larger administration fees are likely if the building is unique, older, or has more facilities.
Strata, owners corporation, or body corporate management fees
General maintenance
Cleaning and pest services
Gardening and landscaping
Building access and fire services
Gyms, pools, and shared areas
Common property insurance
Security costs
Legal and consultant fees
Common area utilities
The strata sinking fund collects the financial contributions from property owners to meet long-term maintenance costs, known as the capital works fund in New South Wales, the sinking fund in Queensland/Northern Territory, or the maintenance fund in Victoria/Tasmania.
The fees collected for this account are designed to handle medium and long-term expenses, such as larger repairs, structural works, and planned projects.
Determining how much should be in a body corporate sinking fund is influenced by factors like building size, age, location, and community needs. Often, older buildings may have higher fees within this fund to account for more frequent projects and repairs.
This owners corporation and body corporate sinking fund should always have enough money to pay for necessary common property maintenance. If the owners corporation or body corporate struggles to fund the common property maintenance, that’s generally a sign that something is wrong.
Replacement of roofs and gutters.
Repainting building facades.
Installation of new windows.
Stormwater drainage replacements or repairs.
Renewing or replacing worn-out fixtures and fittings.
Amending issues with balconies or pathways.
Most owner corporations and body corporates seek a strata manager’s guidance and administrative support to help effectively manage the property in line with best practices and compliance requirements.
The strata management fees for using a third-party management provider are generally listed as a portion of the overall administration levy. Strata managers cover many functions associated with strata schemes, including financials, governance, meetings, and minutes. Some firms offer additional services, including building and asset management and caretaker services.
While there is no legal requirement to engage a strata manager, DIY management structures may be challenging in some situations. Having a third-party expert to help manage the scheme reduces conflicts and makes life easier for the committee and lot owners.
Strata management fees are generally insignificant relative to the broader administration fund and sinking fund fees, so it’s always a good idea to find the best manager you can.
Inclusions
This charge covers standard day-to-day management services.
Disbursements
This charge covers administrative activities such as printing and phone calls.
Additional fees
This charge covers unexpected circumstances such as extra meetings.
Did you know
While some may assume levies are used entirely to pay for your strata manager's services, this is far from the truth. Only a small percentage of your strata levies helps cover strata management fees. Most of it goes directly into your property's capital works/sinking/maintenance fund and administrative fund.
In Australia, the fees for strata, owners corporation, and body corporate management can differ significantly, primarily influenced by the levy amount associated with the specific property. Comparing fee amounts, coverage details, and fee structures is vital before you purchase into an owner’s corporation or body corporate property.
As is often the case, there is a difference between price and value. While most pricing structures are reasonably consistent, differences in locations, buildings, and property lots are significant.
To better understand your strata management fees, it’s essential to know how strata levies are calculated. They often represent a percentage of the property’s value, providing insight to help determine if the payment amount is appropriate for the building and help you define what is good value.
The expected levy total is typically between 0.8% and 1.0% of the yearly property value for a building with little to no facilities. While levy costs can be even smaller in some situations, ultra-low costs often come with severe compromises. On the other end of the spectrum, a building with extensive facilities will have an expected levy total between 1.0% and 1.5% per year. To calculate your levy amount compared to these figures, you can review and add up your last four quarterly invoices and the annual total as a percentage of your property value.
You can do the same thing to review the management fee, which should come in between 5.8% and 8.7% of the levy total for buildings with little to no facilities and 6.4% to 11.6% for buildings with extensive facilities. While this represents a small percentage of the overall levy amount, professional management can significantly affect the overall outcome.
Think of your levies, strata management fees, owners corporation or body corporate admin and sinking funds as a financial safety net. They provide the money needed to cover administration, expert advice,, and any legal help required during defect repairs.
Often, owners and committees might think that higher levies and fees aren’t necessary, especially for newer buildings. But this isn’t always the right approach. Your building’s funds should begin accumulating from the moment you start, as the costs for fixing defects and general maintenance kick in from day one. So, consider your levies and fees as financial buffers that back you up when needed.
Sometimes, unexpected costs might arise, and the owners may need to pay a special levy when money in the capital works, maintenance, or sinking fund isn’t enough to cover these unforeseen expenses. Any additional charges are agreed upon during a general meeting and are above and beyond the regular levies.
Effective property management relies on each owner paying their contributions promptly and in full. Underestimating the critical role of accurate budgeting and levy setting from the beginning can lead to property owners facing large and unforeseen special levies. Each lot owner should take an active interest in the budget and expenses, understanding their contribution. It’s a good idea to familiarise yourself with the proposed budget before the AGM so you can ask informed questions.
Just because your building is new doesn’t mean you should avoid accurately budgeted levies and fees. While it might seem a good idea to strip out or reduce levies and fees for sinking, capital works, and maintenance funds, this approach can lead to financial difficulties down the track.
To learn more about managing your strata property’s financials, download our FREE Community Living guide here. We also provide our customers with an intuitive, modern, easy-to-use dashboard and 24/7 access to their financials and related information via CommunityHub. Or, to find out more about the services we offer, click here for a free strata assessment.
