If you own an apartment, you’ll know that your mortgage isn’t the only big expense. Owners corporation levies are fees that must be paid as part of any strata titles scheme (also known as ‘strata levies’). These levies go toward the maintenance of common property in general (for example, the lifts, pool and gardens.)
There are different types of strata levies, each having a different purpose. As an apartment owner, you must generally pay up to three types of strata levies:
- The administrative fund budget
- The sinking fund budget
- A special levy, if something breaks down or is damaged and insurance does not cover the damage
This article gives an introduction to these three strata levies and when they are due.
The Administrative Fund Budget
The administrative fund budget is a fund that covers the costs of most administrative and maintenance expenses associated with common property, including:
- regular maintenance of common property;
- insurance; and
- recurring expenses such as electricity, pest control and bank fees.
The Sinking Fund Budget
The sinking fund budget exists to cover necessary and reasonable capital expenditure for the financial year ahead. This will be outlined in a projected schedule of expenditure, called the ‘sinking fund forecast’. Additionally, this fund must contain sufficient reserves to meet anticipated future expenditure beyond the current financial year. For example, if the owners corporation expects to, in several years, repaint the common area of the building or repave the common area car park.
Apartment owners must pay special levies in the event that:
- an unexpected expense arises (outside the regular maintenance covered by the administrative fund budget); and
- insurance cannot cover that expense.
For example, the owners corporation may ask for a special levy to fix a burst pipe in the carpark, or if the building’s air conditioning system breaks down. These levies are payable on notice as they arise.
Calculating the Levies
In some cases, each apartment owner will pay the same levy amounts. However, the apartment size or amenity may also affect the levies, resulting in each apartment owner paying different amounts. The proposed budget may also consider:
- the size of the building;
- the building’s age; and
- common amenities such as pool facilities and elevators.
These factors will affect the contributions of each lot owner.
Strata levies are typically fixed at the start of every financial year at the annual general meeting (AGM) of the owners corporation. At the AGM, the owners corporation will decide:
- how much to put into the administrative fund budget and the sinking fund budget;
- how much each apartment owner will pay;
- the number of instalments by which to pay levies; and
- the due date for each instalment.
The owners corporation must present a budget to all apartment owners that outlines how much money will be allocated to the individual administrative and sinking fund budgets. The overall budget must include enough money to cover both funds, including both expected expenditure and sufficient reserve funds for unexpected expenses. The apartment owners then vote to accept or amend the proposed budget. Once accepted, the budget is set for the year.
Consequences for Not Paying Levies
All apartment owners are responsible for paying strata levies on a quarterly basis. If you can’t pay, the owners corporation can recover the funds through legal action. They may also charge interest and recovery fees. For example, by starting court proceedings to recover the payment, interest and other costs.
Owning an apartment can be expensive. Not only will you need to pay a mortgage and council rates, but also strata levies. These levies include:
- an administrative fund budget for regular maintenance and administrative costs;
- a sinking fund budget for capital expenses outside regular maintenance, such as repainting or repaving; and
- special levies to meet unexpected expenses not covered by insurance.
Should you not pay these levies, the owners corporation may try to recover them through legal action.
If you need advice on your obligations to pay strata levies, call LegalVision’s strata lawyers on 1300 544 755 or fill out the form on this page.
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