Help Centre
All information is general of nature and should not be taken as advice. Legislation varies by state and territory. If you are unsure, please contact us.
Finances
Introduction to Strata Finances
Strata finance management can feel complicated, but the fundamentals are quite straightforward.
Essentially, all owners pay levies which are then put into a shared pool of money. This shared pool of money is then used to maintain and improve the building.
So while owners can feel frustrated by increasing levies, the money that they are paying to the owners corporate is still theirs. The better the shared pool of money is managed, the further each dollar will go. Which makes a massive difference in the maintenance of the building, and protection of each owner's asset.
The Admin Fund
The total finances of the owners corporate are split into two different pools of money.
The first is the administrative fund, which is used to manage the day-to-day expenses of the strata scheme.
This includes things like:
- Maintaining common property
- Paying for the building insurance
- Joint utility costs such as electricity and water
- Garden maintenance
- Carpet cleaning
- Pest Control
source: https://www.nsw.gov.au/housing-and-construction/strata/serving-on-a-committee/finances-insurance
The Sinking Fund
Also known as The Capital Works Fund, depending on which state you live in.
The Sinking Fund is like a savings account that is slowly being built up by the community in order to pay for a large expense. This could include things like:
- Repainting the exterior of the building
- Large landscaping works changes
- Installation of gate
- Replacing fixtures that are part of the common property (such as outdoor furniture)
Transferring Money Between Funds
The owners corporation can decide to transfer money between funds or make a payment from one fund that is usually covered by the other fund. For example, paying for repairs from the administrative fund.
Where this happens, an owners corporation must hold a general meeting within three months of the transfer or payment to decide:
- whether to reimburse part, all or none of the money paid or transferred, and
- the amount to be transferred from the other fund or levied as a contribution to the fund.
The owners corporation does not have to repay the money within the three months
source: https://www.nsw.gov.au/housing-and-construction/strata/serving-on-a-committee/finances-insurance
Budgeting
You could think of your owners corporation like a business. To run a business well, it's important to consider how much money you need in the upcoming year.
That is why each year the owners corporation needs to set and review the budget. Usually reviewed and voted on at the Annual General Meeting.
This budget should include an estimate of expenses for the year ahead, to help you work out the levies that owners need to be charged. The budget should also set out when levies should be paid – for example, quarterly.
When budgeting, you must take into account the goals and expenses set out in your Capital Works Plan. Also known as The 10 Year Plan in some states. For example, paying for a complete exterior re-painting in 5 years time.
The owners corporate can also put money aside in case of emergency events. This can be added to the sinking fund levy amount.
The strata committee discusses and agrees on the budget first. But it must be shown and approved at a meeting with all of the owners.
Understanding Strata Levies
Each owner contributes to the shared pool of money in a strata community by paying Levies.
Many owners are surprised to find out that levy amounts may be different between owners. This occurs when lot sizes are different between owners.
For example, if one owner has a 3 bedroom townhouse with a courtyard and another has a single bedroom with no outdoor area, the lot liabilities will be different between the two. Therefore, the owner of the larger lot will have to pay a larger levy, however, they also get more voting power in meetings.
Special Levies
Sometimes, unforeseen expenses arise that exceed the budgeted funds. In such cases, the Owners Corporation may impose a Special Levy to cover these costs. Common reasons include emergency repairs, legal fees, or significant upgrades.
Before a special levy is applied, it requires approval through a general meeting of the Owners Corporation. The specifics, including the amount and payment terms, are communicated to all owners.
It's important to note that the process and requirements for special levies varies between states. Find your local state government resources here.
Managing Unpaid Levies
Approaching unpaid levies with empathy and understanding is critical to maintain community harmony. Sometimes owners may be experiencing financial hardship that can be difficult to openly talk about with their neighbours.
Some options available between a community and a particular owner with unpaid levies are:
- Proactive Communication. All owners in the community should be made aware why paying levies on time. The primary reason, is that the money is used to protect their asset.
- Send a reminder. Alert the owner that the levies are overdue, provide clear contact details and instructions for how to pay.
- Allow more time to pay. This must be introduced to an owners corporation meeting and be decided on by a vote
- Payment Plans: A payment plan can be developed in partnership with the committee and again must be voted on at an owners corporation meeting.
- Waiving Interest on Unpaid Levies. An owners corp is entitled to charge interest on unpaid levies. Whether that is from state legislation or a by-law for that particular property. The community can vote waive the interest on this one occasion, as per the owner with the late fees request, or vote to waive interest altogether.
- Using a Debt Collector. Should only ever be used as a last resort. Always be clear with the debt collector regarding how they will approach the problem as well as their fees.
Owners facing financial difficulties should proactively communicate with the Owners Corporation to discuss possible payment plans or solutions.
Minimum Notice for Levies
Legislation varies state by state. Generally, the advice is:
- Standard Levy Notice - 30 daysto pay
- Emergency Special Levy Notice - 14 days to pay
- Debt Recovery Notice - 21 days to pay. And must include:
- The amount of the levy
- Interest and expenses to be recovered
- Whether a payment plan may be entered into
- When the amount was due to be paid
- How the amount may be paid
- How the owners corporation proposes to recover the money
What are financial Audits?
An audit is where an independent third party reviews the financials of the strata scheme. This can help ensure the scheme is being managed properly. Reducing the risk of unnecessary waste, overspending and even fraudulent activity.
The primary goal for this is so that owners can be confident that the shared pool of money that they are all contributing to is being used properly.