How are Strata Fees (levies) calculated?

Stratarama How are Strata Fees (levies) calculated?

A common question put to Strata Managers, sometimes followed up by “Why are the fees higher in this Strata group when the other group I am a part of is much lower?”

We will address the first question first. This may be surprising to some, but it is not the Strata Manager or the Management Committee, but actually, the owners who agree upon the yearly budget for the Strata group at each Annual General Meeting (AGM). The budget should reflect what the expected outgoings or expenses of the group and the incomings or revenue will best be consistent of, to be sufficient to cover the expenses of the group.

Examples of expenditure that a Strata group can anticipate are items such as common property insurance, common utilities (e.g. driveway lighting), grounds maintenance, etc.

Once the group decides how much money it will need to cover its expenses, this amount is divided amongst the owners for payment, called levies. Levies are generally paid in advance every quarter.

It is a requirement under both the Strata Titles Act 1988 and the Community Titles Act 1996 that all owners of the Corporation consider a projected or “proposed” budget. If you engage a professional manager, they should provide or arrange this service to you (budget preparation). If you are self-managed, the proposed budget should be prepared by the owner elected as Treasurer.

A good way to prepare a budget (or check the one presented to you), is to compare the previous year’s income and expenditure and ensure that enough money is budgeted to cover said expenses and accommodate for any anticipated increase in costs, or any new costs that the group anticipates in the coming period.

At the time of the AGM, if enough owners are represented, a simple majority passes the budget, and all owners are responsible for their contributions (levies) to the group for the following 12 months.

The second question, “Why are my fees higher than others?” ties into the above. As explained, each group of owners sets the amount of money raised for each year. For illustration purposes, we will demonstrate how contributions can differ between properties by using hypothetical Strata A and hypothetical Strata B.

Strata A is frugal with the contributions raised by the owners. They have money in reserve, have just carried out major maintenance works and are not anticipating any upcoming capital expenses in the near future. Strata A only has a small common area where the bins go and no common gardens. Each unit has its own individual water meter and pays the cost of water direct to SA Water.

Strata B is looking to carry out external painting of the entire property in the next two years and is raising money over the course of the year to offset that later expense. The common gardens are vast, and the owners prefer to pay a gardener to attend every two weeks to keep well-maintained. There is only one meter for water usage on-site and every drop used inside or outside the units is accounted for in the budget for the Strata. There were also several unexpected expenses in the last 12 months. Hence, the owners decided to increase their contributions to ensure that they have enough to cover any other unexpected items which may arise.

For this purpose, we have used quite stark differences between the two properties for clarity. However, you should now be able to see how contributions can be quite different, and no two Strata groups are ever quite the same.

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Can You Manage Your Own Strata?

Stratarama Can You Manage Your Own Strata?

The short answer is, yes. But any experienced Strata Manager will always recommend that a group be professionally managed. This recommendation will not necessarily come from a place that is seeking your business, but more so from knowing what skills and knowledge are required to ensure that the collective of owners is remaining compliant with the relevant legislation.

Some Body Corporate may choose to self-manage to save on management fee costs, which is a feasible option in rare instances. However, the burden of running the matters of the Strata Corporation would then fall to the owners. The elected representatives will need to ensure that they can afford the time and resources which go into running a successful Strata Corporation.

It is a lot to ask of one or a couple of owners to take on the burden of calling Annual General Meetings, raising and holding other owners’ money in trust and preparing records for potential purchasers every time unit is put on the market. There is also the matter of following up non-payment of levies. Most people would not relish the thought of following up their next-door neighbour for unpaid debts to the group.

These are only a few examples of the many things that the Owners are electing to be responsible for themselves by not engaging the services of a professional Strata Manager.

There is also a lot of benefits that can be derived from the experience of a seasoned Strata Manager. Unsure of what kinds of insurance policy will adequately cover the legislative needs of a Strata Corporation? Your Strata Manager can assist. Not sure if you require the other owners’ approval to install that garden shed or pergola? A quick call to your Strata Manager will get you a clear answer.

Most professional Strata Managers will also have extensive experience in conflict resolution, which while you may think is not necessary for your group, it can only take one decision that another owner does not look upon favourably, or an owner selling their unit to another person who may disagree with the other owners on an important decision. At these times, mediation is critical to the preservation of the complex and the continuing harmony between the owners.

A good thing to remember is, it is much easier to have a professional in place managing your affairs before it becomes necessary, to ensure that the rules and regulations of your Strata are in place and being upheld.

Some groups are happy to self-manage and have people in their group who have the right skill set to help the group but remember it’s not all about the current owners – if a new owner purchases a unit during the year and has not come with the same respect or understanding of Strata Titles like the one who is departing, unforeseen issues may manifest and it can become difficult to control the situation.

If you do decide that self-managing is not for your group, make sure you seek out a Strata Community Australia (SCA) accredited member and speak directly to the manager with whom you will need to work with to ensure that you are getting the right fit for your group.

If you are within a self-managing Strata and wish to remain so, please feel free to reach out to the team at Stratarama for support and advice if required.

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