Each strata scheme has a trust fund that is established when the building is first built. This fund controls the money that is collected from owners and used to repair and maintain the building. In order to determine how much the levies should be, the developer engages the services of a strata managing agent to estimate what the costs will be to run the strata scheme for the first year. Then each year the owners review and decide on what the levy amount will be.
How are levies split between owners?
When the strata scheme is built each apartment is valued and a ‘unit entitlement’ is determined for each apartment. This value will determine what proportion each apartment will pay in levies. Larger apartments will pay more levies per annum than smaller apartments. For example this table shows the split of unit entitlements for a complex of 4 apartments:
Payment of levies
Commonly levies are paid quarterly in advance. Owners are sent a levy notice a month prior to the due date and if the owner does not pay the levy within a month after it is due outstanding balance attracts penalty interest at a rate 10% p.a.
Budgeting
There are two funds that are held for the strata scheme, an administrative fund and a sinking fund. The administrative fund is to pay for day to day expenses such as building insurance, cleaning, gardening, electricity and administrative expenses. The sinking fund is a type of ‘capital works’ fund that is a savings fund for the upgrade, repair or replacement of common property. These could be items such as replacing fences, internal carpet, upgrading of elevators and so on.
Annually the strata manager, which is sometimes in consultation with the Treasurer, prepares a budget for the upcoming financial year. The budget is put to the owners to vote on. The owners may amend and determine different levies for the upcoming year. However, owners should bear in mind that lowering the budget may mean cutting items. It may mean for instance, reducing the number of visits per week by the cleaners. The budget is to ensure the financial sustainability of the strata scheme.
Keep levies low
There are many different strategies that can be put into place to keep levies as cost efficient as possible. This can include utilising an insurance broker to seek out the best deal on insurance and participating in Strata Choice’s buying groups. Strata Choice uses the buying power of hundreds of strata schemes to obtain the best group buying deal on large cost items, such as energy use and elevator maintenance costs. Participating in the buying groups can save up to 20% of the annual costs of these items. Energy efficiency initiatives are also worth the investment for both ongoing cost savings and the positive environmental impact.
