When you purchase a property that has a strata title, you will be required to pay strata levies (unless you own all the lots that make up the parcel of land). An apartment, unit and townhouse all have strata title because the land on which the property is situated has been subdivided into smaller parcels of land. A consequence of subdividing land is that there will be property that is shared by all owners. This shared land is known as common property.
To ensure the common property is maintained and that the owners insure and manage the strata scheme appropriately, levies need to be raised from the owners and paid to cover the outgoings.
What is Strata Levy?
A strata levy is also known as an owners corporation or body corporate fee. Owners corporation and body corporate mean the same thing. Strata levies are payable by all owners on a periodic basis and a failure to pay can result in proceedings to recover the funds. The amount of the strata levy depends on the units that have been allocated to the property that you have acquired.
When you purchase a property with a strata scheme, the vendor’s contract of sale will contain a schedule of all the properties and the respective current strata levies payable. Remember these levies can change based on the dollar amount per unit held.
To help you understand more about strata levies, we have prepared this Strata Levies Guide. Please do not take any advice in this blog as accounting, tax or legal advice. The content of this blog is a guide only covering general information. You should approach authorised consultants to assist you with more specific information or advice.
How much is strata levy?
Strata levies are set by the owners corporation. To ensure the common property outgoings, strata scheme insurance and strata scheme regulatory obligations are met, the strata levies need to be set appropriately so that the owners can contribute as a collective to maintain the strata scheme. In accordance with a budget of the estimated outgoings and funding requirements for the forthcoming year, the levies will be calculated and paid by the owners proportionate to the number of units held. The objective of the owners corporation is not to break even because additional funds will need to be invested for future maintenance and upkeep activities.
Who determines strata levy?
The strata levy will be initially calculated by a qualified and experienced quantity surveyor. It is their job to assess all the possible outgoings, prepare a schedule of the costs and determine the amount of levies payable. Other financial consultants can be engaged by the owners corporation to ensure the levies are calculated correctly. Following the initial determination, the owners corporation will need to forecast the costs for future years using budgeting and forecasting techniques. This can be a complicated task, and consultants should be engaged to assist to ensure the correct levies are calculated.
Why do owners within the same strata scheme pay different strata levies?
When you purchase a property that has strata title, it will have a set number of units prescribed to it. This will be recorded on the title that has been lodged with the State’s land authority. The units prescribed to each property typically stay the same and never change. Generally, a larger property will hold more units compared to a smaller property in the same strata scheme. When the owners corporation determine the levy payable, they will divide the budgeted target by the total number of units. This rate is then multiplied by the number of units prescribed to each property. It is the resulting value that is paid by the owner on an annual basis.
Can I delay paying strata levy?
Delaying the payment of strata levy needs to be considered in light of the owners corporation rules. Ensure that you discuss your intention to delay payment with the owners corporation or the strata manager acting on behalf of the owners corporation. You do not want to incur interest or penalty fees for paying late. Strata levies need to be paid on time because the levies tend to be the only source of income for the owners corporation. While more established owners corporations will have investments earning interest, the owners corporation rely heavily on the timely payment of levies.
Who do I pay strata levy to?
When you purchase a property that has strata title, you will receive information about the strata scheme. The owners corporation might be self-managed or the owners might have appointed a third party service provider such as an owners corporation manger to assist with the day-to-day tasks and levy collection. You should consult the owners or the strata manger to understand how payments should be made. This information will also be provided on the periodic strata levies rates notice sent to your preferred postal or email address.
Where does my strata levy go?
Strata levies are used to fund the administrative fund, maintenance fund, special levy fund or sinking fund. When you acquire a property that has an owners corporation, there will be outgoings such as regular maintenance of common property, insurance, regulatory requirements and recurring expenses such as electricity, lift servicing, swimming pool cleaning, pest control and bank fees. The administrative fund covers these types of outgoings. The maintenance fund receives a portion of the levies and is invested for future use so that irregular maintenance of the common property can be performed. A sinking fund tends to exist in more established owners corporations where potentially major development projects are being considered. A special purpose fund might also exist to fund a particular item that requires attention (such as a broken lift).
Will strata levies change?
Strata levies rarely stay the same. There is likely to be a change to the levy when the strata scheme development is larger with greater common property areas. If your strata scheme has amenities such as courtyards, theatres, swimming pools, concierge, lifts, etc. expect to pay higher strata levies. Common property does require ongoing care and maintenance and the levies will vary to ensure the common property is managed appropriately. The owners corporation will budget the forthcoming year’s outgoings based on the current year’s outgoings, maintenance requirements, future project considerations, insurance premium changes and its regulatory obligations. This will inform the levies that will need to be raised.
Do tenants pay strata levies?
Owners pay strata levies. Investors usually recover the strata levy costs from the rent received from tenants. It is the owner’s obligation to pay the strata levies on time and in accordance with the payment methods stipulated on the invoice. Strata levies are typically collected on a quarterly basis to ensure the owners corporation has a fluid cash flow.
Can I object to a strata levy?
There are limited avenues to object to a strata levy. The strata levies are never determined behind closed doors and the amount is always agreed at the Annual General Meeting. All owners are encouraged to attend the meetings, however few owners turn up. It is at this meeting that you can voice your concerns or suggest ways to lower the strata levies payable. However, your views will need to be agreed by the majority. Once the strata levies have been voted on, they are set for the forthcoming year.
What you might be able to object to is any fines or penalties levied on you by the owners corporation for breaching the rules or regulations. You should consult an appropriately qualified consultant if you find yourself in this situation.
What happens if I don’t pay the strata levy?
If you do not pay the strata levy in full on time and fail to pay in response to reminder notices, the owners corporation can take proceeding to recover the levy, associated costs and interest. It is advisable to pay on time and let the owners corporation know if you wish to receive a small extension of time. It is important that you maintain your cashflow and factor in strata levies when you calculate other outgoings payable for owning a property with a strata title such as water, electricity, gas, telephone and council rates.
I don’t use the common property much. Can I pay a lower strata levy?
This argument is unlikely to succeed against the owners corporation. Many owners are frustrated that they have to cover the cost of common property features and amenities when they do not use them. However, this is not an excuse for paying lower strata levies. Before acquiring a property that is part of a strata scheme you should check the nature and scope of the common property to ensure you can afford to pay the levies at present and in the future.
How can I influence the strata levy rate?
Join the owners corporation committee and collaborate respectfully. If you are a member of the committee you can help budget and forecast outgoings and funding requirements. This might help lower the strata levy rate. However, when you join the committee you will have legislative duties that need to be met. Otherwise, you could be removed from the committee for non-cooperation or non-compliance.
At Our Body Corp, we provide our clients with effective owners corporation management services. We have developed an innovative cloud solution which enables owners that are members of an owners corporation to appropriately and efficiently manage their owners corporation affairs with the help of qualified and experienced consultants. To learn more, contact our qualified team on 1300 848 343.