Why Is Strata So Expensive: Understanding Your Strata Fee in 2021

Stratarama Why Is Strata So Expensive: Understanding Your Strata Fee in 2021

As a Strata Manager, we see many different levels of contributions raised by various groups across Adelaide.

Each unit owner sets their level of contributions or levies based on the recurrent annual expenditure they foresee (budgeting) and their long-term cost for larger projects (a sinking fund or a series of one-off special levies). These decisions are made at the Annual General Meeting.

Under both the Strata Titles Act 1988 and the Community Titles Act 1996, it is required that all owners of the Corporation consider the proposed budget for the ongoing expenses of the group. This budget should be put forward for the consideration of the Members by the group’s appointed Treasurer, or in the instance where the Strata or Community group is professionally managed, this budget may be compiled and presented by them at the request of the group as part of management services.

Comparing the line items of a budget against the previous year’s budget and/ or last year’s actual expenditure is a fantastic method to determine what funds will be needed to be budgeted over the coming (or forward) period. The annual (recurrent) expenses should all be accounted for within the budget covering items that the group faces annually. 

These costs may or may not include grounds maintenance, general repairs, utilities (water and power), insurance premiums and possibly insurance excesses, management, tax, banking, legal fees, and more.

At this meeting, a simple majority will pass the budget, where a quorum has been formed.  

All owners are responsible for their contributions (levies) to the group for the following 12 months.

Tony Johnson from the Lookup Strata website has answered several levy-related questions before. Check them out here: 

https://www.lookupstrata.com.au/sa-increase-levies/

Why Are Strata Fees So High?

As discussed above, if you fee the levies are high/ expensive, you need to determine what factors are creating the cost? Attend your Annual General Meetings and get involved in the group business to discuss and understand where these costs come from.

Whether fees are higher or lower are determined by the Owners themselves, as outlined above. Strata Corporation Members may look to minimise recurrent costs by managing the group themselves, finding a value for a money manager, shopping around for a reasonable grounds Contractor, reviewing insurance costs and utility providers, to find the most cost-efficient options for the group, however as always, Buyer Beware when the fees are low, make sure that the service remains high.

The level of strata fees requiring to be contributed will be different for every Strata unit complex, depending on the recurrent expenses that the Corporation faces. Some groups may have common lighting as a recurrent expense. Others may not. 

Some Corporations may choose to pay the water usage charges from the Strata (based on having one water meter on-site). In contrast, others may have SA Water break this up and send the invoice directly to the Owner, thereby removing this line item from the Strata Corporations budget and expenses.

Some factors which determine the contributions include:

· age of the building

· location

· type of property

· maintenance costs – Has the group been well maintained, lowering the need for repairs?

· insurance costs – Has the group been well maintained, which has lowered the risks associated with insurance claims, lower premiums, lower excesses for fewer claims.

· operational costs

· amenities: pools, gyms, elevators (lift maintenance), function centres and much more

· Legal fees or Debt collection costs

· Utilities (common power), shared water

How Are Levies (Contributions) Paid?

Corporations may set different payment methods. The Corporation will set an Annual level of contribution for each fund applicable (Administration and Sinking) then these Annual contributions may be imposed for Annual payment, or broken down into smaller levy payments (usually a quarterly contribution), to assist with Owners being able to raise funds, and also to help with cash flow for the Corporation. 

Are Strata Fees Negotiable?

It is the Members of the Corporation at the Annual General meeting who set the level of contributions. As such, the levies are collectively negotiable every year. However, once the group has successfully moved to adopt a level of contribution, this is set until the next AGM. 

Whilst we talk about the Group members negotiating on the levies to be raised, the budget should offer considerable guidance on what is or is not achievable when setting levies. For example, once committed, your utility costs, insurance, amenities, etc., are fairly fixed each year. 

To raise a level of contribution less than your general expenses in the forward period would result in the group spending more money than they are raising. This would either deplete a reserve of funds or simply require the group to present yet another levy to cover the costs.

So, there is a minimum amount that each group must raise, depending on what the individual costs of that group are (which we have discussed above). If enough funds aren’t raised, the group could impact the health and safety of the residents in the building. 

For items that are not recurrent or fixed, the group members have a greater ability to negotiate with one another at the meeting regarding the contribution for those costs. 

This may mean, allowing in the Administration fund, a contingency for items, it may mean setting a Sinking fund for future projects, or agreeing with each other, that instead of having a large sinking fund, that the group commit to calling special levies to cover the cost of project works when they arise. 

The Strata and Community Titles Acts vary in respect to these requirements in South Australia. It is important to note that these are varied again in other States in terms of what is or isn’t legally required to be raised.

What is a Sinking Fund?

The Sinking Fund is like a forced savings account. The Members fix a level of savings at the AGM, be paid each year by each member, and put away projects in the future. This may include larger maintenance items that are not attended to each year, such as typical painting, guttering, roofing, fencing, timber rot, and other such things. 

It may include long-term maintenance items on amenities in larger-scale properties, such as considering replacing an Elevator or resealing a shared pool. 

Ensuring that when these items require maintenance, the group has the funds available to undertake the repairs. Such budgeting would include a prospective timeframe for the works, i.e. the group believes that painting will be required in 3 years to prevent rot, or a report on the roof indicated an expected life expectancy of 5 years.

The Sinking funds set by the Corporation Members may also be for improvements to the complex, rather than just repairs. Perhaps the Members passed motions to improve the property: This could include rendering the complex, installing security gates, landscaping or other one-off larger scale projects.

What is a Special Levy?

A special levy may be raised for a one-off project item. This works the same as a Sinking fund contribution, in that you are raising funds for non-recurrent costs, but rather than increasing savings for several projects, the levy has been called purely for one project such as those mentioned above. 

This could still be broken down into smaller payments the same as a Sinking fund contribution, or it may be called by the members to be raised all at once. It is possible that the special levy may not be for proposed works. Instead, some maintenance emergency that was not anticipated by the group may be for emergency works but now has to be completed urgently.

Unpaid Levies? What if I don’t pay?

When an owner cannot (or chooses not) pay their Strata levies at or before the due date, interest is calculated against the overdue amount. Overdue Reminder fees may also be charged.

When a unit is “Unfinancial“, that unit Owner/ Corporation Member does not have any voting rights within the Corporation until the debt has been collected.

The Corporation requires these funds to meet its obligations on all of the expenses that we have discussed above. By paying the levies late or not at all, the Owner is placing the group’s financial obligations at risk. As such, the ability for the Corporation to recoup these funds through actions such as reminder fees and interest, to keep Owners attentive to paying their levies is essential. 

Should these actions not be sufficient, the Corporation may send the debt on to a Debt Collection Agent to follow up. If the funds are not recovered, the matter may be taken to court for judgement on clearing the debt. These actions will add extra financial burden on the Unit Owner, and it is therefore recommended that owners make every endeavour to pay their levies on time. 

An owner who is aware that they will have an issue paying their levies on time should reach out to the Corporation via their Office Bearers or Strata Manager to determine if a payment plan can be implemented, depending on the individual scenario and when the funds are required to be outlaid on expenses. A Corporation can’t consider someone’s immediate circumstances if they are unaware of any financial hardships.

We know this can be a difficult conversation to have. However, getting in front of the issue before it escalates and additional fees have accrued against the unit would be far better for all parties and may prevent additional hardship. 

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