There is a lot of misconception about strata levies (also known as body corporate fees or owners corporation fees), so it is helpful to know how these fees work and why they are important.
As the owner of a strata property (also known as body corporate or owners corporation property), you are required to pay levies towards its upkeep. It’s a vital way to protect your investment.
Yet who sets them? How are they spent? And do owners have any say in it?
Our ‘beginner’s guide’ to levies is designed to help you work out what’s what, and who’s who. When you understand how your levies work, you are empowered to make smarter decisions about your property.
What are levies and fees?
Levies are payments designed to cover the costs of a range of administrative, repair and maintenance activities that are necessary to keep the property in good order.
Where do your levies go when you pay them?
The funds are typically put towards two separate accounts: an administrative fund and a capital works fund (also known as a sinking fund).
These funds belong to the property and do not go to the strata manager (also known as body corporate manager or owners).
They are managed and used by your strata committee (also known as the body corporate committee or executive committee) to fund planned and unplanned activities.
How is the administrative fund used?
The administrative fund manages the day-to-day costs of the property, covering the expenses of maintaining common areas.
This includes bills for a wide range of services, not limited to insurance, accounting, management fees, rates, energy, water, cleaning, pest control and gardening bills.
How is the capital works fund used?
Most schemes are legally obliged to have a capital works fund (also known as a sinking fund). This is designed to cover the cost of capital expenses, as they arise.
Examples include:
- Painting or repainting of common property areas.
- Repairing and maintaining common property areas.
- Acquiring, updating or replacing common property items, for example, outdoor furniture.
- Renewing or replacing fixtures and fittings that are part of common
property. - Project management and related expenses for capital works.
- The capital works fund helps maintain the value of your property, and if it is kept up to date by the owners, it’s also helps avoid the need for special levies.
In some states, you are not legally required to have a capital works fund.
Who sets your levies?
Levies are set by the owners, which make up the owners corporation.
The annual budget will determine the individual owners’ levy charges. The budget details how much money is needed for annual expenses, and how much will be saved in the capital works fund towards future maintenance projects.
The required funds are divided between owners based on lot entitlement. This determines the individual owners’ levy charges.
Levies are outlined in the annual budget and approved at the property’s annual general meeting (AGM). The budget also states when levies should be paid, for instance, quarterly or annually.
If your property’s expenses exceed the amount paid in levies, owners will be issued a special levy. This is a one-time levy paid by owners, to cover the deficit. It is paid in addition to your normal levy.
What role do owners play in how funds are used?
Owners are encouraged to take part in the financial decisions governing the property.
All owners automatically join the owners corporation, which votes to approve the budget (including proposed levies).
By attending your property’s AGM, you can vote on a wide range of decisions and plans about the property. This includes the levy amount, and how funds are spent.
Who pays your strata or body corporate manager?
Fees for your strata manager (also known as body corporate manager, owners corporation manager or community manager) are paid from your property’s administrative fund.
It’s important to note that the amount you pay in levies and fees is not the amount that your property is paying for management services. The majority of your levies go towards the administrative and maintenance costs of your property, with the management company receiving only a small proportion of the total fund.
You can see the amount your property has paid for management, in the financial report supplied prior to your AGM.
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