As a lot owner in a strata scheme, you are required to financially contribute towards the running/operating costs associated with your building and common property.
These financial contributions are called levies. The amount and frequency of levy payments are generally decided on annually at the Annual General Meeting but are typically paid in quarterly instalments.
Lot owners pay levies to meet the financial obligations of the Body Corporate including:
- Building maintenance
- Building insurance
- Maintenance of common areas (including any swimming pools, gyms, lifts or fire servicing equipment and installations)
- Onsite caretaker, gardener or cleaner
- Any common electricity or common water
- Sinking fund costs
- Costs for management
Monies raised by levies can be divided into two separate funds: the Administrative Fund and the Sinking Fund.
The Administrative Fund Levies:
- Maintaining common property and assets, such as pool cleaning and garden maintenance.
- Regularly recurring expenses such as pest control, bank fees, professional fees etc.
Insurance Levies:
- This is a levy you won’t see in all Bodies Corporate as it is only required when the Interest Lot Entitlements differ from the Contribution Lot Entitlements, otherwise this is included in your administration fund levies.
- The premium paid for the insurance must be for insurance covering the full replacement value of the common property, and the building structure when required, and public liability.
The Sinking Fund Levies:
- Are for amassing required funds for major works and upkeep in future years.
- Infrequent expenses of a capital nature, such as consultant fees or fire control.
- Major and long-term expenses, such as replacing the air conditioning systems, replacing the roofs, or repainting the building.
What is not covered by Body Corporate levies?
Body corporate levies are generally used for the maintenance and management of shared or common areas, they typically don’t cover things such as the following:
- Contents insurance for your personal belongings
- Council rates for your property.
- Maintenance, repairs, and improvements to your individual lot. For example, installing air conditioning or fixing a blocked toilet would not be covered.
- Utilities such as water, gas, and electricity, unless there is a shared meter and this cost is covered by your body corporate levies.
Who sets the amount for your body corporate levies?
Body corporate levies are set by the body corporate itself. Your body corporate manager may offer advise but does not have any direct input into the amount of levies charged.
Body corporate levies are usually set via the following process:
- Budgets are prepared by, or in consultation with the body corporate committee
- An annual general meeting (AGM) is called
- At the AGM the body corporate votes to accept the budgets for each of the funds
- The body corporate then sets levies for the coming financial year based on those budgets
Why are body corporate levies so different in different buildings and apartments?
Body corporate levies are calculated based upon the cost of running the building or complex. The total amount required to maintain and manage the building for each year is budgeted, and then divided up between the owners
The Body Corporate determines how much money is needed in both the administrative and sinking funds. These amounts must be supported by a budget that is presented to all owners, both at the AGM and then in the supporting minutes.
The budget must take into account the amount needed in both funds to cover expected and unexpected expenditure. It must also consider the existing financial situation of the Body Corporate.
Your individual levies as a Lot Owner are also affected by your Unit Entitlements.
Unit entitlements are the allocated share of the rights and responsibilities of a strata scheme. They impact an owner’s contributions to the expenses of the strata scheme, rights over common property and voting rights.
In some property each of the lots will have the same entitlements and therefore has an equal responsibility to pay these fees.
In other buildings or villa/townhouse complexes, some properties will be larger than others or have access to additional facilities and amenities which may mean they incur higher levies.
For example, a four-bedroom townhouse with a courtyard will generally have higher levies than a one-bedroom townhouse on the same block without a courtyard.
Likewise, a penthouse apartment would be expected to pay higher levies than other smaller apartments in the same building.
Read more about Unit Entitlements here
Each body corporate’s levies are highly individual, and it’s hard to compare one building or complex to another.
Body corporate levies can vary depending on any of these factors:
- Size – smaller buildings will not require as much maintenance, cleaning and work, and are generally cheaper to run. Conversely, some larger buildings will have very reasonable levies as they are shared by a larger pool of owners. The most expensive levies can usually be found in mid-sized buildings with plenty of amenities.
- Location – different locations come with different problems that will need to be paid for. For example, buildings near the ocean are likely to experience salt water and storm damage; inner city buildings may experience noise and pollution issues.
- Age – older buildings generally need more maintenance than newer ones. On the other hand, many new buildings may have serious defects that must be addressed by owners.
- Design and Construction – building design and construction factor into levy cost in many ways. For example, buildings constructed from block are cheaper to maintain than rendered or wood buildings; buildings with lifts are more expensive than ones with stairs.
- Building Condition – how well your building has been maintained in the past will have an impact on levies, as your building may have defects that need repairing.
- Facilities/Amenities – facilities such as pools, gyms, lifts, barbeques, maintained gardens, games rooms, media rooms, libraries and building managers all increase the cost of body corporate levies.
- Services Provided – the services provided by paid professionals (such as body corporate managers or building managers, accountants, gardeners etc.) versus body corporate volunteers will influence how high your body corporate levies are.
- Your Individual Lot Size – lots which are larger than others or have access to additional facilities that other lots don’t have may be required to pay higher body corporate levies. This is normally seen via differences in contribution entitlements.
Why do body corporate levies increase over time?
Body corporate levies increase as the cost of goods and services increases over time.
For example, an increase in the cost of your building’s insurance will result in an increase in the cost of your levies.
Paying Your Levy
Levies are generally payable on a quarterly basis, and a notice is issued by the treasurer of the Body Corporate or the strata manager.
Levy notices are legislatively sent at least 30 days prior to the due date. This gives owners ample time to plan for and make the payment. Regardless of whether an owner receives a notice, they are still obligated to pay the levies on time.
You can always refer back to your last Annual General Meeting Minute to locate the levy periods and due dates if you are unsure.
What if I can’t pay my levy on time?
If you cannot pay your levy by the due date, interest is calculated on the overdue amount. Owners who cannot or do not pay their levies become ‘unfinancial’ and you will be unable to vote in meetings until the debt is collected.
There are several steps that the Body Corporate will take to recover the unpaid levies, including all interest. While at first, a notice will be sent to the owner to request payment of the levy, the matter will be turned over to a debt collector and then a solicitor if the levy remains unpaid. If all attempts fail, the Body Corporate can recover the unpaid levies, in court, as a debt.
Unpaid levies put a strain on all other unit owners, especially if they are required to make up the shortfall. The act of reclaiming the unpaid levies can also be an upfront cost to the Body Corporate which is normally recoverable from the unit owner on top of their unpaid levies.
If required, the Body Corporate may look to implement payment plans to help recover overdue levies. This may occur in the case of financial hardship for unit owners. If you are in this situation, it’s always best to approach your body corporate manager to discuss payment options, before a situation of unpaid levies even arises.
Body corporate levies are in everyone’s best interests
Although body corporate levies can seem like an unwelcome expense, it is vital to ensure that both the administrative and sinking funds remain healthy and proper budgeting had been done to plan for future expenses and emergencies.
This ensures that your building’s facilities and services are kept up to a high standard and helps maintain the value of each owner’s investment.
Without proper upkeep, buildings will rapidly start to look unappealing, pose health risks and lose appeal to potential buyers.
Have a question about body corporate levies? Contact Stratacare today!
