If you have anything to do with strata schemes in NSW, you’ll know the term ‘special levy’ pops up from time to time.
In fact, you’ve probably scratched your head over the term, special levy once or twice especially if you live in a strata scheme and you’re part of an owners’ corporation.
So what is a special levy? We’re taking this opportunity to cut through the jargon and give you a no-nonsense understanding of special levies in NSW strata schemes.
Before We Dive into What a Special Levy Is…
Let’s get a Handle on Some NSW Strata Scheme Basics…
In a nutshell, a strata scheme is where multiple property owners share a building or development.
Each owner has their own slice of the pie, that’s their individual lot; think apartment, commercial space, or parking spot. They then share the responsibility for the common areas (like gardens, hallways or the pool) with all the other owners. Owners pay quarterly levies or strata levies so this can happen.
Simple, right?
What is the Owners’ Corporation?
The owners’ corporation are the team of people responsible for managing and keeping an eye on common areas. It’s made up of all the owners in the scheme who band together to make decisions about important stuff, like maintenance, repairs, and more.
Special levies need to be approved by the majority of the owners’ corporation.
What Are Strata Levies?
Before we get into the nitty-gritty of special levies, let’s break down the different types of strata levies in a strata scheme.
There are three types of strata levies and they are:
Administrative Fund Levies
Administration fund levies are your regular quarterly levies. They cover day-to-day expenses like property maintenance and insurance premiums; the things that keep the place running without you having to think about it.
For many strata schemes this includes:
- Regular maintenance of common property (because you’ve got to keep things clean).
- Insurance to make sure everything’s protected.
- Recurring expenses like electricity bills, pest control, and bank fees.
Keep in mind this doesn’t include bills for your individual property, only those for amenities and common spaces you and other owners share.
The administrative fund strata levies keep the wheels turning and ensure your strata community is in the best shape possible.
Capital works fund levies (previously known as a sinking fund)
Think of the capital works fund as a rainy-day fund.
The capital works fund budget covers necessary and reasonable capital expenditure for the year ahead. It’s like your savings bucket for the strata community spending plan.
The capital works fund isn’t just about the here and now; it’s about the future. It needs to have enough money tucked away to handle expenses that might pop up beyond the current financial year.
For instance, if your owners’ corporation knows that in a few years, it’s time to give the common areas a fresh coat of paint or spruce up the car park, the capital works fund is where this money is likely to come from.
Special levies
Special levies come to the rescue when unexpected expenses come up, and Owners Corporation does not have the funds or insurance just can’t cover it all.
Picture this: Your owners’ corporation faces a burst pipe crisis in the car park or the entire air conditioning system in the building decides to throw in the towel. These are the moments when special levies are called into action.
Special levies are not part of your regular financial plan, so they’re payable as soon as the need arises. Special levies are like your emergency fund; there when you need them most.
So what is a special levy?
Imagine the administrative fund and capital works fund (previously known as the sinking fund) as your strata scheme’s bank account (like a regular savings account). You’ve got money stashed away for everyday expenses and some set aside for future plans.
But what if there’s an emergency project or an expense that wasn’t on your budget radar?
That’s where the special levy steps in. It’s like the emergency fund you never knew you needed.
Special levies are called on when the regular levies fall short of the financial requirements you need for an unexpected situation.
Burst pipes, damaged roofing, electrical mishaps—you name it, special levies are there for serious problems that needed to be fixed yesterday.
Special levies can also be useful for future planning, for those big projects you and your fellow homeowners would like to see when it comes to services and facilities. Things like a new pool, electric car charging stations or new equipment for the building’s gym.
Here’s why a special levy is so handy:
- It gives all owners a say: The special levy gives you a voice in deciding what services and facilities you want in your community. The majority of all owners need to vote for the special levy before it can go ahead.
- Financial flexibility: You can finance exciting upgrades and improvements without committing to higher site fees forever.
- Turning dreams into reality: With the special levy, you’re not just dreaming; you’re making things happen.
- Boosting home value: Better services and facilities can increase the value of your home. So, it’s a win-win for everyone in the community.
When do you initiate a special levy?
No one likes unexpected expenses, especially ones that require you to dip into your pockets. But they’re an essential part of strata life, designed to ensure your strata complex not only survives, but thrives.
So, when do you need to crack open that special levy piggy bank? It all comes down to safety, essential repairs needed in your strata scheme or that special project your community has been planning.
But anything posing a threat to your strata community like the pot-holed pathways or amenities failing statutory safety standards? Well, those things can’t wait. That’s when special levies are able to save the day.
What must be covered in a special levy notice?
A special levy notice guides you through the process of bringing exciting changes to your strata community. So, what needs to be included?
- Putting it in writing: First things first, it’s got to be in writing. This notice isn’t just a casual chat; it’s a formal document that spells out the plan.
- Clearly describing the plan: The notice clearly describes what’s on the table – whether it’s a new service, a shiny facility, an upgrade, or a needed improvement.
- Show me the money: You’ll see the total amount of what’s needed and when. Will it be in one lump sum or spread out in convenient instalments? You’ll find all the details in the notice.
- Dividing the pie: Ever wondered how the costs are shared? The notice breaks it down for you. You’ll see exactly how much each homeowner needs to contribute. It’s all about contributing equal shares for the amount that you own. Fair’s fair!
- The vote: Last but not least, the notice tells you how you can have your say. It’s like getting your very own ballot. You’ll learn how to cast your vote and be part of the decision-making process.
How is a special levy passed?
There’s a process to follow, and it’s all laid out in the Strata Schemes Management Act.
Here’s what happens:
- First, call a General Meeting: The first step is to discuss and propose the special levy at a general meeting of the owners’ corporation. This means that all owners will get to participate and have their say in the decision-making process.
- Ordinary Resolution: To make the special levy official, you need to pass an ordinary resolution. That means you’ll need a majority vote (more than 50%) from eligible owners to give the green light to the levy. All votes have to happen within 90 days of the notice being given. Homeowners who don’t vote are deemed to be against the proposal. It’s all about making decisions together through a democratic process.
What if I’m not on board with the approved levy proposal?
Enter the NSW Civil and Administrative Tribunal. It’s like the referee of strata disputes, and it’s got the authority to step in. They’ll listen to both sides of the story and make a call – either giving that special levy the green light overturning the decision.
Who is the special levy paid to?
Your special levy payments go into the trust account held by your strata managing agent. The funds must be used for their intended purpose. Any money leftover can be addressed in a future meeting.
Exploring alternatives to a special levy
While special levies are a necessary part of strata schemes, there are other ways to tackle unexpected expenses without immediately resorting to levies. These can include:
- Shifting funds: Sometimes, your strata scheme might have enough money sitting in the bank, but it’s not allocated to the right fund (administrative fund or capital works fund). In this case, you can juggle money between the two, with the condition that you pay back the borrowed amount within three months.
- Strata finance loans: When neither the existing funds nor fund-shifting can cover the expenses, you can explore the option of taking out a strata finance loan. These loans provide the capital needed for body corporate management to complete essential projects promptly, avoiding potential cost blowouts and keeping your strata complex shipshape.
The owners’ corporation and the special levy
To make sure the owners’ corporation are all on board with special levies, here are some tips:
- Keep It transparent: Talk openly with all owners about why a special levy is needed, where the money’s going, and how it affects everyone’s wallet (both now and in the long run).
- Budget well: Crunch those numbers to figure out exactly how much is needed for the special levy. Nobody likes surprises when it comes to cash.
- Pay on time: Timely payments for special levies are crucial to keep the strata scheme’s financial wheels turning smoothly.
- Stay legal: Follow the Strata Schemes Management Act and other rules when it comes to special levies. Avoid legal hiccups by playing by the book.
So What is a Special Levy in a Nutshell?
Nobody loves parting ways with their hard-earned cash, especially when it comes to unexpected bills or expenses like a special levy in a NSW strata scheme. But hopefully after reading this you’ll have realised special levies are not the bad guy here.
A special levy is your safety net, ensuring that your strata community remains safe and your residence is a functional and attractive place to call home.
Special levies might not be the most glamorous part of strata living, but they’re undeniably essential for maintaining your safety and lifestyle—ensuring your strata complex stands strong for years to come.
