Why Do Body Corporate Levies Increase?

What body corporate levies pay for

Levies pay for everything the owners share. They are collected into two main funds, whatever the state calls them:

• The administrative fund covers day-to-day running: building insurance, common property electricity and water, cleaning, gardening, routine repairs and the strata manager's fees.
• The capital works, sinking or maintenance fund saves for major work that comes around every few years or decades, such as repainting, roof replacement, lift upgrades and waterproofing.

In NSW the scheme is a strata scheme run by an owners corporation, in Victoria an owners corporation, and in Queensland a body corporate. The fees are often called strata levies, owners corporation fees or body corporate levies, but they work the same way. Checking them is one of the unit-specific steps on our contract review checklist for buyers.

Why do body corporate levies increase?

Levies go up for one of two reasons: the scheme's costs have risen, or it has not been saving enough and has to catch up. The common causes are:

• Insurance. The scheme must insure the building, and building insurance is one of the costs paid from levies. When premiums rise at renewal, or the scheme has made claims, the administrative budget rises with them.
• Running and management costs. Contracts for cleaning, gardening, lifts, fire safety servicing and strata management are usually renegotiated or indexed over time, and utility costs for common areas move with the market.
• Sinking or capital works fund contributions. As a building ages, more major items fall due. When the long-term plan is updated and shows a shortfall, contributions have to rise to cover it.
• Years of under-saving. Some schemes keep levies low for years and then face a large increase or a special levy when work cannot wait any longer. NSW Fair Trading warns buyers that low levies could mean a steep rise in future fees.
• Major repairs. A failed roof, leaking balconies, concrete cancer or a lift replacement can force a jump in levies or a special levy.
• Building defects. Defects in newer buildings, such as waterproofing failures or fire safety and cladding problems, can bring repair costs, engineering reports and legal fees that owners fund through levies while any claim is pursued.
• Compliance changes. New safety or maintenance obligations can add recurring costs.

How body corporate levies are set: the budget and the AGM

Levies are set once a year from a budget the owners approve, then split between lots by their entitlement. A lot with a higher entitlement pays more.

• NSW. The owners corporation approves its budget by majority vote at the annual general meeting, and that budget sets the levies for the year. Each scheme must have a 10-year plan for major work funded from the capital works fund, reviewed at least every five years and considered at each AGM. Owners must get at least 30 days' notice to pay levies, with shorter notice possible for emergency repairs.
• Victoria. The committee prepares a budget estimating administration, maintenance, insurance and maintenance plan contributions, and sends it to owners with the AGM notice. Fees are shared by lot liability. Tier one and tier two owners corporations must have a maintenance plan covering major capital items expected to need repair or replacement within 10 years, and a maintenance fund to pay for it.
• Queensland. At the AGM the body corporate must agree, by ordinary resolution, on administrative and sinking fund budgets for the financial year, and fix each lot's contribution, the instalments and due dates. Contributions follow the contribution schedule lot entitlements, while insurance for building format plans follows the interest schedule.

Every owner can see the proposed budget before the AGM, ask questions and vote. That is the point at which a levy rise can be questioned, and the minutes record why it was approved.

Special levies: when the increase comes all at once

A special levy is an extra charge raised outside the normal budget, usually because a cost was unexpected or the capital works fund cannot cover it. Queensland bodies corporate call it a special contribution and can raise one by ordinary resolution during the year. In Victoria, a special fee that is more than double the current annual fees must be approved by a special resolution of at least three quarters of lot owners or lot entitlements.

Special levies are the biggest levy risk for a buyer, because they can be resolved shortly before or after settlement. Our guide to special levies discovered after purchase explains how that happens and what a new owner can do.

How to check levies before you buy

Every state gives buyers a way to see the scheme's finances before they are committed, usually as part of the seller's vendor disclosure documents. The key document differs:

Read the minutes as well as the numbers. Proposed works, defect reports, insurance problems and disputes usually appear in the minutes before they turn into a levy increase. Look for:

• how levies have changed over the last few years
• the capital works or sinking fund balance compared with the long-term plan
• insurance renewals, claims and excess amounts
• special levies raised, proposed or discussed
• defect reports, legal advice or proceedings
• outstanding levies on the lot you are buying

Our guides to strata reports, owners corporation certificates and the strata report checklist go through each item. A conveyancer handling your unit purchase orders these documents and flags anything unusual before you sign or before cooling-off ends.

Can owners stop levies from going up?

Owners can question and vote on the budget, but they cannot vote away the costs. Insurance must be held, common property must be maintained, and the capital works or maintenance plan exists so the money is there when the work is due. A vote to keep levies artificially low usually moves the cost to a later special levy rather than removing it.

If you think a levy rise is unreasonable, raise it at the AGM or with the committee in writing and ask for the reasons and quotes behind it. Each state has a strata dispute service for disagreements that cannot be resolved inside the scheme.

Frequently asked questions

This guide is general information, not legal or financial advice. Rules, fees and timeframes change and differ between states, so confirm your own situation with a licensed conveyancer, settlement agent or solicitor.