Owners corporation fees are one of the most frequently asked topics. In this article, we help answer some of the more common owners corporation fee questions for current and prospective property owners.
When you buy a strata-titled property, you share access to utilities and common areas of the building such as gymnasiums, pools, foyers, hallways, recreation rooms and so on, with other lot owners. As shared owners of these amenities, lot owners are collectively responsible for their management, maintenance and repair. They must also pay their portion of utility costs.
We receive calls and emails from lot owners and prospective investors each and every day with questions related to owners corporation fees. In this article, we try to answer some of the most commonly asked questions about owners corporation fees and explain the difference between fee types.
1. How much should I expect to pay?
There are a number of factors that determine how much each lot owner must pay in owners corporation fees.
Owners corporation fees cover expenses related to the daily running and maintenance of common property areas and an amount for forecast maintenance and improvement works.
Ongoing operational and maintenance costs can include the cost of a strata management service, cleaning and gardening contractors, shared utility bills, insurance, and regular plant and property maintenance. Generally, the bigger the property, and the more amenities available for lot owners to use, the higher these costs will be.
Lot owners must also contribute an amount to cover future planned works, such as facility upgrades and renovations, and emergency repair and breakdown of property, plant and equipment.
Owners corporation fees are usually charged quarterly. It’s best to plan these expenses in advance, taking into account mortgage repayments and council rates to make sure you have capacity to pay them by the due date.
For those considering buying a strata-titled property, a good guide on what owners corporation fees you should expect to pay can be found in the previous year’s strata report. These reports can be purchased online or obtained from your conveyancing lawyer. They contain information on the financial status of the owners corporation, pending and past building works, the cost of current levies and fees, the likelihood of extra levies, insurance costs and owners corporation building rules.
2. How are fees shared amongst lot owners?
Owners corporation fees are determined by preparing an annual budget. These are usually prepared by the owners corporation manager as they are the most informed about costs associated with running and repairing strata-titled properties.
To forecast an accurate budget, previous expenses, planned future maintenance works, CPI increases, legislative changes, insurance increases and a levy for unforeseen or emergency expenses are incorporated.
Once finalised, the budget is presented at the annual general meeting for owners to consider. Once the majority of owners (more than 50 per cent) agree on the budget, strata fees can then be worked out according to each owner’s lot liability.
A lot liability is a schedule created by a building surveyor and set out in the property’s plan of subdivision. It includes a list of administrative and general expenses that each lot owner is required to pay based on the size of a lot compared to others in the building.
3. How do I pay my fees?
Fee notices must be made on approved forms which can be found on the Consumer Affairs Victoria website.
Fees and charges must be paid within 28 days of the date on the fee notice. Fee notices must be sent to lot owners in sufficient time for them to organise timely payment.
Penalty interest may be charged on overdue fees if the owners corporation has voted to charge interest for late payments. The fee notice must contain the interest rate that is payable for overdue fees. The maximum rate of interest that an owners corporation can charge on overdue fees is determined by the Penalty Interest Rates Act 1983 and can be found on the Department of Justice and Community Safety website.
If the money owing is not paid within 28 days after the date of the fee notice, the owners corporation may send a final notice to the lot owner. It must state the overdue fees, penalty interest on the overdue fees (if charged), the amount of penalty interest that will accrue daily until it is paid, and the right of the owners corporation to take legal action to recover the amount due if not paid within 28 days of the notice.
Some owners corporations may, however, choose to allow a grace period that provides for a gentle reminder by way of a call or email before sending a final notice. In light of the current COVID-19 crisis, many owners corporations are choosing to exercise some leniency on payment of owners corporation fees.
It is important to note that owners who do not pay fees lose their right to vote on ordinary resolutions.
4. What is a maintenance fund?
A maintenance fund is a financial allocation to cover repair and replacement costs associated with the owners corporations maintenance plan
An owners corporation maintenance plan is a 10-year plan for replacement or repair of major capital items, such as replacing roofing or repainting buildings. It outlines the present condition of the items, when items or components will require repair or replacement, the estimated cost of repair or replacement and the expected life of these components. This plan must detail anticipated repair and replacement costs and timing for all major capital items over the next 10 years. To be implemented, it must be approved by an ordinary resolution at a general meeting.
Strata properties containing more than 100 lots, or owners corporations that raise more than $200,000 in fees are called “prescribed owners corporations” in Victoria.
It is compulsory for prescribed owners corporations to have a maintenance plan, although we recommend strata properties comprising more than two lots have a maintenance plan to make sure you budget to set aside enough money to repair and replace property, plant and equipment over time.
5. What are special fees?
Special fees are charged to cover unforeseen expenses, such as urgent repair to property, plant and equipment or to cover legal action taken against the owners corporation.
Lot owners are charged special fees based on their lot liability. Where the works being undertaken only benefit one or some lot owners, only those lots affected will pay the special fee.
In Victoria, if the amount of the proposed special fee is more than double the amount of the annual owners corporation fee, it must be approved by special resolution from at least 75 per cent of total lot owners or lot entitlements.
6. Are owners corporation fees tax deductible?
Strata fees that cover administrative outgoings and maintenance plan expenditure are typically tax deductible, as long as you keep a record of expenses.
However, if an expense is considered to be a special fee to cover major capital works, these fees aren’t deductible.
7. Can I dispute my owners corporation fees and charges?
It is best to try and resolve your dispute over fees and charges with your owners corporation first. If you are unable to resolve the dispute via their dispute resolution process, you can apply to have the Victorian Civil and Administrative Tribunal (VCAT) make a ruling.
If an owners corporation is in dispute, they must pay a fee notice at the time of applying for the ruling.