What do my strata fees pay for?
A good strata manager is like a good waitress: invisible unless you need something. And just like a good restaurant, a well-run complex involves a lot of people working hard be-hind the scenes. When the strata levy bill comes at the end of the quarter, it's important to understand what your money has paid for and why strata levies are so important to keep-ing your property well looked after.
To break it down, we spoke to Joe Joseph, Senior Strata Manager with Independent. Joe has years of experience working with strata complexes and here he shares some of his insights on how strata levies are calculated and what they cover.
It’s important to understand that while strata levies might feel like an additional tax on apartment owners, it’s not the case. For the most part, they cover the same things you’d pay as a house owner except that you’re paying for a proportion of a larger building in-stead of individual costs.
What is a strata scheme?
To understand your strata fees better, let's revisit what a strata title property is and how it works.
When you buy a property in a strata scheme, you’re not just buying your apartment or townhouse. Nor are you the proud owner of the entire complex. Instead, what you're buying is your ‘unit’ and a proportion of the common property.
The common property is made up of the parts of the building that are common to all, including the external roof, walls and flooring, as well as common areas like the foyer, elevators, car parks and gardens. It is shared between the owners of the individual units un-der the umbrella of the owners corporation (sometimes known as the body corporate).
Every owner is automatically part of the owners corporation. It is the owners corporation that is responsible for the upkeep and maintenance of the common property. Your strata fees pay for this upkeep, as well as other financial commitments.
Your strata manager, who is appointed by the owners corporation, works out how much money each owner needs to contribute, collects it on your behalf and does the day-to-day running of the complex. This includes paying invoices, budgeting for costs, organising strata meetings and mediating disputes. If there is no facilities manager, strata managers also organise maintenance and repairs of the common property.
What do your strata fees cover?
To keep your strata scheme running smoothly and in good condition, the owners corpora-tion needs to pay for some or all of the following:
- Maintenance and upkeep of the building
- Maintenance and upkeep of any common areas and amenities
- Building insurance
- Strata management fees
- An onsite facilities manager
- Utilities to any common areas (for example, electricity to run elevators or lighting common areas)
- Periodic or unexpected repairs
There are three types of strata levy, all of which are usually rolled together and invoiced quarterly.
1. Administrative fund levies
The administrative fund covers the day-to-day expenses of the strata scheme. This amount doesn't change much, although it will usually increase incrementally from year to year as costs rise.
Day-to-day expenses might include any or all of the following:
- Small maintenance and repair tasks
- Utility bills for common areas
- Building insurance premiums
- Strata management fees
- Facilities management fees
- Bank charges and incidentals
“Building insurance is absolutely essential,” says Joe “It means that you're covered against disaster or if someone injures themselves in the complex. Owners don't need to take out separate building insurance on top, so there's a saving there.”
2. Sinking fund levies
The sinking fund levy is intended to provide an ongoing fund for larger capital expenses. These include anticipated expenses, like periodic roofing repairs, repairing the exterior of the building or replacing items like carpets, blinds or hot water systems in common areas. The sinking fund should also take into account unexpected expenses that aren’t fully covered by your building insurance.
As a new development, you probably won't have any major repairs for a long time yet. Paying your sinking fund levies from the beginning, however, means peace of mind that you’ll be covered when things do pop up. They also offer the opportunity to make improvements down the track.
“Some owners corporations have been saving up for over a decade,” Joe explains. “Where there hasn’t been a big expense or repair needed, they’ve been able to use the money for improvements instead. We recently helped one complex replace its old roof, which was made of concrete tiles, with brand new Colorbond. We showed them how much they would save with the new material, which won't need ongoing maintenance, and everyone was happy with the decision."
3. Special levies
Sometimes, an unexpected expense arises which the sinking fund can’t cover.
Ideally, these expenses will be anticipated ahead of time and covered by the sinking fund. “Nobody likes special levies. We always prefer to budget ahead of time and antici-pate big expenses so that owners can spread the cost and save up,” says Joe.
However, sometimes the issue is one that presents a real danger to inhabitants, or will worsen quickly if not attended to, funds must be raised as soon as possible.
“A couple of years ago, one of our complexes got hit by some severe storm damage,” Joe says. “A tree went through the roof and there was flash flooding to the lobby. It was an old building, so we had been amassing sinking fund levies to cover eventual repairs. Unfortunately, the damage was extensive and there wasn’t enough in the account. We had to raise a special levy almost immediately, because the building was uninhabitable until it was fixed."
If the amount needed is large and the work is urgent, there are strata finance loans avail-able to strata owners. There are several lenders who offer strata loans. Your strata man-ager will be able to advise you on the process required to get one, which will require a resolution by the owners corporation.
How are strata fees calculated?
The strata manager works out how much money is needed for running costs and the sinking fund. The budget is then brought to the owners corporation for approval. For new off plan developments, this is done at the first AGM.
“We work with the developer from the beginning of the build so that we know how big the development is, the number of units and whether the building is fully residential or mixed-use. Then we compare it to similar developments to help us set a budget,” Joe explains. Lifestyle amenities like a gym or swimming pool will increase the running costs, but a brand new development is usually cheaper to maintain than an older building.
If there is a facilities manager on site, they can be very useful here as well. As specialists in building maintenance and repairs, they'll put together a preventative maintenance schedule that takes into account the regular and periodic maintenance tasks needed to keep the building in great condition, as well as bigger expenses down the track.
Once the total amount is arrived at, it is divided among the owners to arrive at each owner’s levy. How it is divided depends on the terms of the complex. In some developments, it is paid in equal shares between all owners. In others, it takes into account the following characteristics of each owner’s unit:
- Gross floor area - larger apartments will pay more than smaller ones
- Subsidiaries, like balconies, courtyards, storage cages and car parking spaces - these add to your entitlement and are calculated in addition to floor space, so owners with more subsidiaries may pay more.
- Location - a desirable location within the complex, like a corner apartment, may trans-late to a higher proportion of the levy
- Original sale price
“Developers usually set the terms for how levies are allocated,” says Joe. “We set the allocation out at the AGM, and we can also explain it to individual owners if they're unsure.”
What happens if you don't pay your strata levy?
Levies are collected quarterly. Just like your utility bills, you’ll have a few weeks to pay.
If you can’t pay your levy, interest will be added to the overdue amount. You will become an ‘unfinancial’ owner until the debt is paid. That means that you won't be able to vote in meetings. Unpaid levies put a strain on other owners, who will either be forced to make up the shortfall or will not be able to afford to meet the building’s running costs and necessary repairs.
The best thing to do if you can't meet your obligations is to speak to the strata manager as soon as possible. Your strata corporation would far rather work with you to sort out the problem than to have to chase a debt down the road.
“We’re always happy to work out a payment plan,” says Joe. “We’d rather get some money than no money, and it’s better for you knowing that the debt isn’t piling up. We sit down with you and work out what’s owing and what’s coming down the track so that you don’t get further and further behind.”
If you don't set up a payment plan, the strata manager will take steps to recover the monies on behalf of the owners corporation. These generally follow the same process:
- A notice is sent to request payment of the overdue amount
- A debt collector and/or solicitor is engaged to take steps to recover the debt
- If the debt remains unpaid, the owners corporation can institute court proceedings to recover the levies.
Any costs incurred as part of trying to reclaim the levies is also recoverable from the unit owner.
Your levies are an essential contribution to keeping your property in great condition. They pay for upkeep, insurance, repairs and improvements as well as the professionals who do the day-to-day work for you. Think of your levy as a continuing investment in your asset. They cover the costs that ensure you maintain and improve the value of your property. Best of all, if you’re a property investor they’re tax deductible.
If you have any questions about how your levies are calculated, or anticipate difficulty in meeting them, get in contact with your strata manager as soon as possible. Independent’s strata team are happy to answer any questions you may have, or check out their services here.
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