What are strata levies and how are they calculated? We explain the detail.
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- Genesis
Strata Levies are one of the most important aspects of owning in a strata scheme, yet are often a misunderstood bill, paid by owners begrudgingly, without the information they deserve to pay confidently. Here we seek to demystify strata levies and give you the assurance to know where your money goes, and what questions to ask when something doesn’t look right.
Who collects the money?
While we will go into the detail of how levies are calculated, the most common mistake owners make when paying levies is thinking they are paying those funds to the strata manager. It’s an understandable mistake given the strata manager does in fact send the bill, however the funds are paid into a trust account, operated on behalf of the Owners Corporation. This means when you pay your levies, you are paying into an account you, essentially, co-own with your fellow owners.
Of course, no one person can decide how to spend this money, and it must be used as prescribed by the Strata Schemes Management Act 2015 (that is, for the operation and maintenance of common property) but the funds belong to the Owners Corporation, of which you are a member.
How is the account operated?
Generally, if you have a strata manager, they will operate a separate account for each customer/owners corporation. Meaning your money isn’t combined with that of other communities. Most companies will require a dual sign off on payments from your account, and one of those MUST be the licensee-in-charge.
How are Strata levies calculated?
The owners corporation is required each year ‘to estimate amounts required to meet its expenses’. Basically, to put together a budget. The budget, generally, will be put together by the strata manager in the first instance. Depending on your building and its characteristics like how large your scheme is, how involved the committee is, any major works or complex financial situation your building may have, they may do this alone, or in conjunction with the strata committee and/or building manager.
The strata manager, however, does not set the levies. This is very important to know, because as an owner, you can have direct influence over how much you pay.
The levies are set when the budget is approved at the annual general meeting. All owners at that meeting vote on the budget and how much to raise. It’s a decision you make with your fellow owners.
Administrative & Capital Works Funds
The budget has 2 categories, administrative fund and capital works.
The administrative fund is for the day-to-day expense of your building. Things like insurance, plumbing, electricity, management fees, cleaning, and general repairs and maintenance. Ideally, your administrative fund will end each year will a balance close to zero. What you put in, you spend.
The Capital Works Fund is for exactly that, capital works! Think equipment replacement like pumps, major replacements like pumps and projects like new carpet and painting. The money that goes into and out of this account should be guided by the 10-year-capital-works-fund report, which should set out expected expenditure and what income is required to meet that expenditure.
What I am entitled to see as an owner in relation to financials?
Everything! It’s your money. Most strata companies will have a portal where you can log in and access the balance sheet, and P&L, at a minimum. However if you want additional details ask for reports like the transaction list and detailed payments. If something doesn’t look right, ask questions. You’re entitled to know where the money is being spent.
Hot Tip
Running a building is expensive. From the moment you walk through the front doors/drive into the car park or enter the driveway, there are expenses related to the common property. Lights, locks, garage doors, sliding doors. They all cost money to run. So ask questions, but be open minded. Running a building is different to running a private home.
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