What do my Owners Corporation levies pay for? Who determines how much they are?
This is one of the most common questions our Owners Corporation Managers receive, and rightfully so! It is often the last thing on people’s minds when purchasing a property however it is still an important factor to consider. The levies you pay go toward a wide range of costs which can differ based on the type of levy you are paying. There are also several factors at play in determining how much they are, which we will try to shed light on below.
There are two types of Levies that an Owners Corporation will typically strike each year:
The most common levy in Owners Corporations throughout Victoria, the Admin Levies go toward ordinary day-to-day operation expenses, such as cleaning, caretaking, communal utilities, insurance, repairs and maintenance for lifts, pools, roller doors etc. Some of the costs occur regularly and are easily budgeted for, whilst others are somewhat sporadic requiring a little more consideration when preparing the budget each year.
If your Owners Corporation is Prescribed (100+ Lots or collect 200K+ p.a.) then it is required to have a Maintenance Plan and a subsequent Fund. Alternatively, an Owners Corporation may prepare a Maintenance Plan for a property which it is responsible for; which would have effect once approved by the Owners Corporation. The Maintenance Plan sets out major capital items anticipated to require repair or replacement for the next 10 years, the Maintenance Levies are raised in accordance with those anticipated expenses.
The frequency in which your levies are due can be decided by the Owners Corporation or its Committee. It is worth also noting the importance of accruing additional funds so as not to leave Lot Owners vulnerable to Special Levies when there are insufficient funds.
In addition to Administrative and Maintenance Levies, an Owners Corporation may levy Extraordinary Fees to cover extraordinary items of expenditure. In most instances, a Special Levy is somewhat of a last resort and used only for unforeseen and very expensive costs. A Special Resolution is required if the Extraordinary Fees raised amount to more than twice the annual fees unless the expenditure is or was necessary to ensure safety or prevent loss or damage to persons or property. It’s worth also noting if the Extraordinary Fees relate to repairs or other works substantially for the benefit of some or one, but not all Lots affected by the Owners Corporation, the Lots must be levied on the basis the Lot Owner of the Lot that benefits more pays more.
The amount you pay for the Levies is primarily a result of Lot Liability coupled with the (approved) Annual Budget for your Owners Corporation.
Normally expressed in ‘units’, the number of Lot Liability represents the share of expenses that each Lot Owner is required to pay. These numbers are determined by the developer in consultation with a Land Surveyor, and sometimes Owners Corporation Manager, at the time of subdivision and can be changed by unanimous resolution of the Owners Corporation.
Example: An Owners Corporation, registered in 2010, has a total of 100 Lot Liability Units. In 2020, you purchase Unit G01, which according to the Plan of Subdivision, has 10 Lot Liability Units. The Administrative and/or Maintenance Levies you pay will therefore represent 10% of the Owners Corporation’s fees raised, being 10 Lot Liability Units of the total 100 of the Owners Corporation.
Owners Corporations operate differently to ordinary companies, instead of setting a Budget and working exclusively within those constraints, Owners Corporations typically Budget based on the expenditure (however for brand new properties the first Budget is a comprehensive estimate produced by the Developer in consultation with the Owners Corporation Manager and various suppliers).
Annual fees to cover the Administrative and/or Maintenance Levies are proposed at the Annual General Meeting for the Owners Corporation (Lot Owners) to approve each year. The proposed Budget is usually prepared by the Owners Corporation manager in consultation with the Committee and is based on a variety of considerations, including expenditure for the previous financial year, expenses detailed in the Maintenance Plan, expected cost increases to various services or utilities etc. Do not be alarmed if your Budget proposes an increase in Levies, it is perfectly normal as the cost of various repairs, maintenance, services, and supplies increase over time. It is important however to oversee expenditure and review where cost savings could be had regularly.
The proposed budget is sent to Lot Owners along with the Notice of Annual General Meeting, so you have time to review and query anything prior to the Annual General Meeting. It goes without saying, but the higher the Budget, the higher your subsequent Levies will be. Once approved at the Annual General Meeting, the Budget will be implemented into the Owners Corporation manager’s software where it will then generate Levies for Lot Owners, based on their Lot Liability Units.
So, there you have it. We hope our shortened summary regarding levies and responsibility provided you with clarification on an often-confused subject.
Should you require assistance with fiscal management at your property, our Owners Corporation management team would be delighted to discuss how we could assist.