Looking to purchase an apartment in a strata scheme? There must be a few questions running through your mind. Like who sets the strata levies and why is there such a variation between lots? It’s important to answer these questions before making an inquiry into purchasing a unit. Watch our video below for a quick explanation, or read on to find out what you need to know first.
What is a strata levy?
A strata levy is an amount determined by the owners at an Annual General Meeting (AGM), which is then paid by the owner of a unit to the Strata Company. Strata levies are paid to maintain the common areas in the strata scheme and as every building has different boundaries between the lot and the common property this amount can vary dramatically.
In Western Australia, there are officially two types of levies which are described under Section 36 of the Strata Titles Act 1985:
- Administrative: A levy used to fund the day-to-day operations of the Strata Company (e.g. garden maintenance).
- Reserve: A levy used to fund non-routine and major Strata Company expenses (e.g. replacement of lift).
There is also a third type of levy commonly used in WA that is not described in the Strata Titles Act called a special levy. Special levies are generally used to raise money to fund major non-routine expenses where there are insufficient reserve funds available.
Who sets the strata levies in a block of units?
Ultimately, it is you and all the other owners that make this very important decision by majority vote at the Strata Company AGM. However, there is a reasonable amount of preparation that goes into calculating the value and the frequency of the levies before being put it to a vote at the AGM.
In the case of a Strata Company that is managed by a Strata Manager, he or she will generally work with the Council of Owners to prepare the budget and present this at the AGM for approval. The process will normally go as follows:
- An expenditure budget is drafted
- The current financial position of the Strata Company is reviewed
- A basic cash flow analysis is carried out
- The total amount of money that is needed to be raised to cover the costs and leave sufficient funds for working capital is calculated
- The amount each owner needs to pay based on their Unit of Entitlement (U/E) is calculated
- The Strata Manager liaises with the Council of Owners before drafting and issuing a notice and agenda for the AGM that will review and approve the budget expenditure and levies
- The owners attend the AGM and determine the budget before discussing the levy amount needed to fund the budget
- The minutes are distributed to all owners advising the levy amount and dates that they are due
- A reminder notice is sent to all owners 21 days prior to the levy being due
Why are there variations in levies between lots?
Looking at Steps 4 and 5 listed above, it’s important to understand why there are variations in levies between lots. To answer this question, we must first look at the budget. In regards to budgets set by the owners, there are two main types: administration and sinking.
A typical administration budget may include, but is not limited to:
- Insurance premium for the building structure and Public Liability cover
- Strata Management fees
- Lift maintenance (if applicable)
- Pool maintenance (if applicable)
- Common water supply (if not metered individually)
- Sewerage charges (usually covered in other states in the council rates but not in the NT)
- Maintenance of common property, e.g. painting, repairs, etc.
- Audit fees (in the NT all accounts have an annual audit)
- Fence and gate maintenance
- Fire protection (if applicable)
- Waste management
Or in other words, any common property maintenance / administration fees. Once the administration budget is agreed, the owners then agree on the amount of levies that need to be raised. A small buffer, also known as a sinking budget, to cover unexpected expenses is also recommended.
A sinking fund is a means of collecting extra funds for specific costs that occur occasionally. For example, a sinking fund for periodic maintenance such as painting programs or roof repairs that are needed every 5 or 10 years.
Sinking budgets can vary enormously from building to building dependent on the owner’s views towards long term maintenance. For example, some Strata Companies have sinking funds in the thousands and some have zero – it is entirely up to the owners to make the final decision. However, as Strata Managers, ESM recommend that something is in place for long term maintenance.
Lastly, when the budget has been approved, it is then divided up the U/E. For example, in a block of 50 units, some may be bigger (two bedrooms versus one bedroom) and therefore will vary. This is set by the surveyor when the original plan is submitted for development and the Strata Titles Act states that this is the method that must be used to share expenditure. However, this article is not intended to be personal advice and you should not rely on its as a substitute for any form of advice.
Need more advice? As the state’s largest specialist Strata Manager, ESM have been providing professional and practical strata management services to Strata Companies in WA since 1986. Contact us today.