Strata Levies

Jun 16, 2015

If you are purchasing a strata title property for the first time it is important to understand the different types of levies that may be raised by the Owners Corporation. It is also important before purchasing to obtain a Strata Inspection Report which is an inspsection of the books of the Owners Corporation . This report will reveal amongst other things the financial state of the Strata Scheme, the current levies and any work which may be coming up in the Strata Scheme and which may need to be funded by a special levy.

There are 3 types of  strata levies;

1. Administrative Fund Levies

These cover the day to day running expenses of the Strata Scheme  such as  insurance premiums, cleaning, gardening, utility bills, accountants fees for audits and tax returns, bank charges,  strata management fees and small day to day repairs. These expenses are the general running expenses of the Strata Scheme.

2. Sinking Fund 

The sinking fund levies are to build up a fund for long term future capital expenses. It may be that the older a building is or if the building has a lift, the sinking fund levies may be greater than in another building.  The amount to be budgeted for in the sinking fund  must cover renovations, refurbishment , big repairs, purchasing or replacing equipment owned by the Owners Corporation and all capital expenses. Common expenses are the replacement of carpet in common areas, painting common areas, replacing windows, repair or replacement of the roof, structural repairs such as rectification of concrete cancer and repairs and replacement of elevators. In buildings that have swimming pools, gymnasiums and other recreational areas the sinking fund should be able to cover expenses related to these facilities including repair and replacement where necessary.

Form July 209  all strata schemes must have a 10 year Sinking Fund Plan in place which has to be reviewed at least every 5 years.  It is important that the sinking fund has a balance which correlates to the expenses which have been identified on the sinking fund plan.

3. Special Levies

A special levy is raised if there is not enough money to meet the every day expenses of the Strata Scheme from the administrative fund or capital expenses from the sinking fund.  I recently had a client looking at the purchase of a unit . The strata inspection report revealed that the owners corporation proposed  to replace the roof of the building and to raise a special levy for this.On a unit entitlement basis, the cost of the work to my client had he proceeded would have been around $15,000.00. This is why it is important to get a strata inspection report and even contact the strata managing agent to ascertain whether there are any big repairs coming up and whether there is sufficient funds to cover them. Sometimes special levies are also raised for legal costs where an Owners Corporation is involved in a dispute about building defects with the developer or builder of a new building.

Who is responsible for a Special levy – Purchaser or Vendor?

  • If the levy is struck before  the date of the contract,and has not be disclosed in the contract the special levy has to be paid in full by the Vendor even if it is payable by instalments. The exception to this is that if it relates to work not started by the contract date.
  • If the levy is struck before the date of the contract and are disclosed in the contract the Purchaser is liable for them.
  • If the levy is struck after  the contract date the Purchaser becomes liable for them in total.

Comments 

  • If you  are selling a strata title property and a special levy has been raised or may be raised before exchange of contracts make sure that your solicitor or conveyancer knows about this so that it can be disclosed in the contract. If it is not disclosed you may be liable for payment of the levy in full.
  • If you are buying a strata title property make sure that you get a Strata Inspection Report to ascertain whether there is a programme of regular maintenance, a 10 year Sinking Fund Plan in place and adequate funds in the administrative and sinking funds. If you have any concerns arising from the report contact the strata manager or even members of the Executive Committee of the Owners Corporation to seek further information or clarification.

For further information on the 10 year Sinking Fund Plans please see  http://www.fairtrading.nsw.gov.au/ftw/Tenants_and_home_owners/Strata_schemes/The_owners_corporation/Sinking_funds.page

If you require any information regarding strata levies please contact Alexandra Tzavellas at  atzavellas@pittstreetconveyancing.com.au