Introduction

The financial responsibilities of living in a strata-titled property can often feel like a complex puzzle. One of the key pieces of this puzzle is understanding the nature and necessity of strata levies, which play a crucial role in the maintenance and enhancement of common property areas. These levies, determined by unit entitlements, ensure that the collective ownership of a strata scheme can enjoy well-maintained and efficiently run common facilities. This article aims to demystify the process of levy calculation, the rationale behind special levies, and the mechanisms in place for dealing with high levy rates. By shedding light on these aspects, property owners can gain insights into how their contributions are utilised and explore avenues for managing and potentially reducing their financial obligations within a strata scheme.

Understanding Strata Levies

Property owners within a strata scheme are required to pay an annual levy, also referred to as a ‘contribution’ or ‘fee.’ This payment contributes to the maintenance and repair of common property areas and covers the running costs associated with these spaces. The amount and frequency of these levies are determined by the budget, which outlines the total levy charges and specifies the payment schedule—typically quarterly or annually

The calculation of levies is based on each property’s ‘unit entitlement,’ which reflects the owner’s share within the strata scheme. This entitlement varies from one property to another; for instance, a smaller apartment may have a unit entitlement of 10, whereas a larger apartment might have an entitlement of 15. Consequently, owners with higher unit entitlements not only wield greater voting power within the owners corporation but are also subject to higher levy payments.

Levy rates and any increases are subject to approval by the owners corporation during the annual general meeting (AGM). Additionally, the strata committee holds the authority to propose a ‘special levy’ in situations where the standard levies fail to cover significant expenses, such as major repair works. Similar to the annual levies, the introduction of a special levy requires approval at a general meeting of the owners corporation, following the procedural steps established for annual levies.

Both annual and special levies are calculated according to the unit entitlement of each property owner. In cases where emergency repairs are necessary to address a serious and immediate risk to residents’ health or safety, the owners corporation must issue written notice of the required levies, including a minimum of 14 days’ notice for payment. This ensures that all property owners are adequately informed and have sufficient time to meet their financial obligations towards the upkeep and safety of the common property.

Reasons for High Strata Levies 

The cost of strata levies can significantly differ based on several factors, including the amenities provided within the strata scheme, as well as the age and condition of the building. Here are some reasons why strata levies might be high:

• Facilities and Building Age: Properties with extensive amenities or those situated in older buildings often face higher strata fees. Older buildings, in particular, may require more frequent repairs and maintenance, leading to higher costs for owners. Such buildings are also more likely to necessitate special levies to cover unexpected expenses arising from their continual need for upkeep.
• Strata Management Efficiency: The proficiency of strata management plays a crucial role in determining levy rates. Incompetent management can lead to unnecessary wastage and accidents, inflating the strata fees. Conversely, adept strata managers can implement industry best practices, potentially leading to cost savings for the owners corporation. Effective management can mitigate stress for lot owners by addressing occupier issues efficiently, which might otherwise escalate without professional oversight.
• Mismanagement Consequences: Poorly managed strata schemes not only risk incurring fines and penalties due to negligence but can also see a decrease in market value. This depreciation affects the investment value for owners, underscoring the importance of competent management.
• Frequent Special Levies: Regular imposition of special levies could indicate underlying management issues within the strata scheme. These levies are typically raised to cover significant, unforeseen expenses, such as major repairs or legal costs. However, if special levies become a common occurrence, it may signal mismanagement or a failure to adequately plan for the building’s maintenance and future needs.

For property owners facing high strata levies, it’s advisable to closely examine the management practices of their scheme. Ensuring efficient management can not only help in controlling costs but also in maintaining or enhancing the value of their investment in the long term.

Dealing with High Strata Levies in NSW: How to Resolve Disputes

If you’re encountering high strata levies and believe they may not be justified, it’s important to know that there are legal steps you can take under the Strata Schemes Management Act 2015 to address this issue.

Ensure the Strata Levies are Legal

Before taking legal action, it’s advisable to thoroughly review the Strata Schemes Management Act 2015 to understand the specific provisions related to levies. Ensure that the levies have been imposed in line with Division 2 of the Act; any levies not compliant or based on invalid resolutions are open to challenge. 

Gather Evidence and Discuss Amicably

Gathering substantial evidence to support your claim and considering legal advice from experts in strata law can also bolster your case. Attempting to resolve the issue within the strata scheme itself, through discussion and negotiation, can be a prudent first step before proceeding to the Tribunal. 

Approach the NSW Civil and Administrative Tribunal 

If resolution efforts within the scheme are unsuccessful, preparing a meticulous application to the Tribunal, complete with all necessary documentation and evidence, is the next course of action. The Tribunal has the power, under Section 87 of the Act, to adjust levies if found to be inadequate, excessive, or if the manner of payment is deemed unreasonable. This application to the Tribunal can be made by various stakeholders, including the lessor of a leasehold strata scheme, an owners corporation, property owners, or a mortgagee in possession.

The Tribunal’s decision-making process involves evaluating whether the levies are disproportionate to the required expenditure or if the payment methods are unreasonable, taking into account the levy’s purpose, the owners corporation’s interest, the reasonableness of the decision to impose the levy, and whether the levy amount is proportional to the proposed expenditure. It’s the responsibility of the applicant to prove the unreasonableness of the proposed levy. However, embarking on this legal path can be complex and carries inherent risks, such as the possibility of being ordered to cover costs if the challenge is unsuccessful.

Practical Tips to Pay Lesser Strata Levies 

To effectively lower strata levies, property owners and Owners Corporations can adopt several strategic approaches. Here’s a concise guide to these strategies:

Optimise Strata Insurance

Insurance premiums constitute a significant portion of strata budgets. By comprehensively understanding the specific risks associated with your property, you can take steps to mitigate these risks, potentially leading to fewer insurance claims and, as a result, lower premiums. Ensuring that your insurance coverage is both adequate and appropriate is crucial; specialised equipment and systems like lifts or air-conditioning units may require additional coverage not included in standard policies. This precaution can prevent the need for unexpected special levies in case of major incidents. Additionally, exploring self-insurance options, such as agreeing to a higher excess or opting for policy exclusions, can yield substantial savings on insurance costs.

Embrace Sustainability

Sustainability initiatives offer dual benefits of environmental responsibility and financial savings. Governments at various levels provide an array of rebates and incentives aimed at enhancing buildings’ sustainability. These programs can significantly reduce operational costs and, consequently, strata levies. They encompass LED lighting upgrades, solar panel installations with battery charging incentives, subsidies for electric vehicle charging stations, and participation in waste management and recycling programs. By taking advantage of these offers, strata schemes can improve their infrastructure while putting money back into the pockets of strata owners.

Prioritise Preventative Maintenance

A well-implemented preventative maintenance program is key to prolonging the lifespan and efficiency of a building’s critical infrastructure. Regular maintenance not only ensures that systems are running optimally but also reduces the frequency of breakdowns, minimising inconvenience and potential costs for residents. Cost savings can also be achieved by scheduling energy-consuming appliances to operate during off-peak hours and upgrading to energy-efficient systems like motion-sensor lighting. These measures can lead to significant reductions in common area electricity bills over time.

Utilise By-laws for Administrative Costs

Strata schemes can manage administrative costs effectively through the adoption of specific by-laws. These by-laws can enable the charging of certain costs directly back to lot owners. Recent tribunal decisions support this practice, provided that the by-laws are fair and reasonable. Consulting with a specialist strata lawyer can ensure that these by-laws are properly drafted and implemented, offering a sustainable method to offset administrative expenses.

Avoid the ‘Lazy Tax’

Regular review and negotiation of contracts with service providers are essential to avoid overpaying for services—a phenomenon often referred to as the ‘lazy tax.’ While it’s not always about cutting costs, securing additional services or price guarantees can provide budgetary stability. Engaging in bulk tendering for contracts such as electricity, lift maintenance, and other services can leverage collective buying power for better deals, benefiting schemes of all sizes. Employing a broker specialised in bulk tendering can align your scheme’s needs with those of similar entities, maximising savings and benefits.

Need More Help? We’re Here for You.

Strata levies are an essential aspect of strata living, ensuring the upkeep and sustainability of shared spaces and amenities. While the necessity of these levies is undisputed, high rates can sometimes pose challenges for property owners. In this situation, professional legal advice can be invaluable. PBL Law Group’s expert attorneys are dedicated to assisting you in understanding your rights, obligations, and the options available for managing strata levies. Whether you need guidance on challenging levies, implementing cost-saving measures, or simply wish to gain a deeper understanding of how your levies are being utilised, our team is here to help.