Apartments offer affordable and easy living. But while you may not have a backyard to mow, the building and its surrounds still need to be maintained. All of this costs money.
Strata fees are mandatory contributions paid by owners with properties located in a unit, villa, townhouse or duplex complex. The amount paid can vary from building to building. A low levy may seem attractive when buying a property, but it may mean there won't be enough to cover future repairs.
With more Australians tipped to be living in a building with a strata scheme in the future, we’ve put together a guide to understanding what the fees will and won’t cover.
We will look at:
- What are strata fees?
- Who manages strata fees?
- Who owns what in an apartment building?
- Does everyone pay the same in a strata scheme?
- Are all strata fees the same?
- How are strata fees calculated?
- What happens if I can’t pay?
- Do I need building insurance if I live in a strata building?
- Do my strata fees cover my utility bills?
- Do strata fees include Council rates?
- Are strata fees tax-deductible?
- What is the upside to buying a strata property?
Remember these are ongoing expenses, so it is important to be well informed and factor costs into your budget.
What are strata fees?
All owners contribute financially to the ongoing care and maintenance of their building complex. These are commonly paid quarterly into a fund managed by the body corporate.
There are three types of strata fees that you can expect to pay:
- Administration fund levies - These fees cover the day-to-day management and expenses of the building such as cleaning, gardening, utilities such as electricity for common areas and building insurance premiums
- Capital works levies (previously known as a sinking fund) - This pays for more costly repairs and maintenance such as roof restoration, replacing fittings and fixtures, painting, updating outdoor furniture and any other major works.
- Special levies - This is to cover an unexpected expense should there not be enough funds collected for the capital work levy.
Who manages the strata fees?
An Owners' Corporation, also known as a Body Corporate, is made up of all the property owners. Entry is automatic when you buy into the complex. And while it may seem like a chore attending the Annual General Meeting, it is important to be involved and have a say in the future of your building.
Body Corporates must manage and administer the common property, raise fees from owners to meet financial obligations, prepare financial records and establish a grievance procedure.
To do this, they elect a Strata Committee usually consisting of the chairperson, secretary and treasurer. They may also opt to employ a strata manager who works alongside the committee. This paid professional coordinates the day-to-day expenditure, regular maintenance, as well as a future capital works fund.
Strata managers make sure the building is properly insured, owners are up to date with their levies and can help to solve disputes. They also have a broad knowledge of strata rules, regulations and compliance.
Who owns what in an apartment building?
The body corporate own the 'common areas' of a building such as lobby, lifts, hallways, car park and swimming pools. This means it is the shared responsibility of all the owners and means everyone contributes to the upkeep of such areas.
The term 'lot owner' refers to the individual dwelling. The owner is responsible for the airspace and everything within the boundary of their apartment, townhouse or villa.
Does everyone pay the same in a strata scheme?
Contributions to a strata scheme are determined by the size of a property. Larger apartments attract a higher strata fee. It is only paid by the owner, not if you are renting.
The term 'unit entitlement' refers to the amount assigned to a property based on its value in the strata scheme at registration. Fees may also be higher for properties with balconies, courtyards, storage cages and parking spaces.
Are all strata fees the same?
Every building has a different strata fee and this cost can depend on its age, location and even your State.
An older complex may have a higher levy to cover ongoing repairs. A newer development can also attract a high strata fee if it has amenities such as a gym, swimming pool or lifts to maintain.
How much is paid is also dependent on how well funds are managed. So, when inspecting an apartment or townhouse, always take the time to check out the common areas too. If the building shows signs of neglect, then there could be some surprise costs ahead.
Always review the buildings' financial records to check that there are no legal disputes between neighbours or upcoming major repairs. A strata plan is usually included as part of the contract of sale. It can also be obtained by your conveyancer or solicitor.
How are strata fees calculated?
As a guide, expect to pay between 0.3 per cent to 1.2 per cent of a property's value in strata fees. Those with more amenities will be in the upper end of this range.
Always do your homework on strata fees by looking at what is being charged by comparable buildings. Low levies can correlate with poor maintenance. This can not only be expensive to fix but can impact the long-term value of your property.
What happens if I can't pay?
It is important to speak to someone from the strata committee or your strata manager if you are experiencing financial difficulties. They may be able to set up a payment plan.
Legal action can be taken against unpaid strata fees and interests charged. It may be tempting to withhold a levy payment in protest if you are unhappy with the body corporate, however, this means that you lose the right to vote at meetings and have your say.
Do I need building insurance if I live in a strata building?
It is a legal requirement that the Owners Corporation will insure the building and common areas and this is included in the strata fees. Always read the fine print of exactly what is and isn't covered by the insurer. Remember an owner still need to pay for home contents insurance to cover the interior of their property.
Do my strata fees cover my utility bills?
If the property is 'separately metered', then the owner or tenant will be responsible for their electricity, gas and water bill.
Do strata fees include Council rates?
Strata levies are based on unit entitlement and doesn't include Council rates. So don't forget to factor these into your quarterly budget.
Are strata fees tax-deductible?
Investors can claim contributions made into the strata administrative or capital work funds as a tax deduction. Like any claim, documentation of expenses is essential. Costs which are deemed to be a 'special purpose', however, may not be deductible. Be sure to discuss this with your tax advisor.
What is the upside to buying a strata property?
It's time to put up your feet and relax! One of the advantages of living in a property with a strata title is that you pay a fee to have all the common areas of the building maintained. You can go on holiday and not have to worry about the garden becoming overgrown or taking out the bins.
Strata properties are more affordable than if you were living in a freestanding home in the same suburb. It can also allow you access to amenities you might otherwise not be able to afford such as a pool, gym, outdoor cinema or even a wine tasting room, for a fraction of the cost.
DISCLAIMER - The information provided is for guidance and informational purposes only and does not replace independent business, legal and financial advice which we strongly recommend. Whilst the information is considered true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information provided. LJ Hooker will not accept responsibility or liability for any reliance on the blog information, including but not limited to, the accuracy, currency or completeness of any information or links.
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