Understanding strata fees: A comprehensive guide
Choosing strata living opens the door to a lifestyle that’s rich in amenities, convenience and community. But along with the benefits, there are also the often-overlooked strata fees that accompany this style of living.
Understanding these payments is crucial if you’re looking to step into the strata style of living. Whether you’re a seasoned property owner or new to strata, this comprehensive guide aims to clarify strata fees, so you know precisely what you're paying for and how to budget.
Strata fees, or body corporate fees, are contributions owners make to the upkeep and enjoyment of community spaces. They are paid to preserve the common areas, ensuring everyone contributes to the maintenance of the facilities we all enjoy.
As experts in body corporate and strata ownership, we’re here to walk you through the strata experience, empowering you to make informed decisions about your property investments. This article will break down the different types of strata fees, look at how they're calculated and what they cover, and explain the management structure, payment, and enforcement.
Understanding strata fees
What are strata fees? There are three different types of fees that owners typically see.
1. Administration fund levies: These levies cover expenses like gardening and cleaning, building management, and day-to-day costs.
2. Capital works levies: The capital works fund is also known as a sinking fund, covering major repairs like roofing or painting.
3. Special levies: The special fund is reserved for unexpected costs, such as a major lift repair.
How strata fees are calculated
Strata fees vary from property to property because of the way they're calculated. This is primarily determined by the unit’s entitlements and factors specific to the type of building.
Larger properties, like a three-bedroom unit in a building with a pool and gym, typically incur higher strata fees than someone in a similar-sized apartment in a simpler building without these extras.
Unit entitlements
Additionally, the size and type of your unit play a role. Think of two properties in one building. The first is a top-floor penthouse with panoramic views, while the other is a standard two-bedroom apartment on the first floor. The penthouse is much bigger and of higher value, so it will have higher strata fees than the smaller unit.
Building factors
The age of the building, its condition, its location, and the services it provides all factor into the strata fee calculation as well. For example, a heritage-listed building in a prime city location will have higher fees due to the specialised maintenance needed to preserve the history. You need to bear in mind that, buildings with pools, lifts and gyms usually have higher fees. A building that is expecting substantial spend on upcoming capital works eg a new roof might increase their fees so that when the time comes, there is no need to raise a special levy to cover the expense.
Factors affecting strata fee amounts
There are several key factors in play that determine how much strata you will pay. These include:
- Location: If you're on the beachfront or in the city, you will pay higher fees because the maintenance costs likely run higher. Insuring beachfront property alone is a more expensive cost than a suburban property, and generally have issues like concrete spalling that require extensive and costly repairs.
- Amenities: If there's a concierge, gardens, a pool, a gym, etc., then you are going to pay higher strata fees than a building that doesn't offer those amenities. Every amenity comes at an additional cost because it requires ongoing maintenance.
- Size of unit: Strata fees are broken down to equitable proportions based on the size of your lot and unit. If you have a larger property in the building, you will pay a higher strata fee.
- Building age and maintenance requirements: Old buildings have a lot of maintenance requirements that newer buildings don't have. There are also risks of costly upgrades to keep things up to building standards. However, newer buildings are more likely to be equipped with additional amenities that drive the cost of maintenance higher.
Related: Where is the best place to buy an investment property in Sydney?
What does strata cover?
Strata fees cover various expenses, which can take a load off your mind. To ensure the common areas are kept in good condition, strata fees cover the maintenance of entryways, lobbies, driveways, car parks, lifts, stairwells, gardens, and pools.
Building Maintenance: It takes a lot of work to keep an apartment complex in good condition, and your strata fees cover upgrades, renovations, repairs and maintenance.
Insurance: Your strata fees cover liability and building insurance to cover the building and common property. However, you will still need to take out contents insurance to protect the interior of your home. Still, it's wise to consult your agreement to ensure you understand what your strata insurance covers.
Utilities: You still have to pay your utility bills, but your strata fee covers water and electricity in the common areas.
Other Services: Building management employs cleaners to handle the daily cleaning. Larger buildings may have a caretaker or facilities manager to handle certain repair tasks, opting for someone to be onsite much of the day to deal with certain jobs, whether repairs or gardening.
Your strata fees cover the costs of those employees and the strata company itself. You can speak to the body corporate manager about who is employed for these tasks.
Understanding strata fee management
Strata management has a major role in delivering the results strata lot owners expect from their fees. It’s a complex system that involves both a committee and a manager.
Strata committee and strata manager
At the heart of strata management, the strata manager is charged with setting and chairing meetings, dealing with insurance, organising repairs, paying invoices, preparing and distributing budgets and financial statements, and ensuring compliance with local regulations.
Alongside the manager, the strata committee is made up of various lot owners who vote on big decisions, serving as the voice of the community.
Strata fee transparency and accountability
Transparency and sound financial management are essential to maintain trust among strata owners. This includes:
- Financial statements: Sound financial planning and budgeting are required, and regular financial statements should reflect the community's financial health.
- Annual general meetings: AGMs allow strata owners to discuss issues, approve budgets, elect committee members, and vote on resolutions.
- Dispute resolution mechanisms: Disputes between neighbours are commonplace, and every strata body should have a structured process for dealing with them.
Strata management companies
A strata management company can help maintain the functionality and harmony of a community. Strata consultants have the experience required to deal with:
- Dispute resolution: skilled in handling conflicts that arise between residents, ensuring resolutions are fair and in line with community guidelines.
- Property value protection: helps maintain or even increase the value of the property through effective management and maintenance practices.
- Community-focused operations: prioritise the well-being of the entire community, making decisions that benefit all owners collectively.
- Administration: have the expertise for proper administration, including financial management, legal compliance, and consistent communication, ensuring smooth operations.
Factors to consider when hiring
Research is a must. Choose a licensed real estate company, look at the portfolio they currently manage, the improvements they've made, and question the type of communication they prefer, turnaround times, and the number of buildings the manager has.
Comparison with self-management
Self-management can be more appealing because it can lower costs and allow for more direct control over decision-making. But, there are pros and cons:
|
Pros |
Cons |
|
|
|
|
|
|
Related: How much does a building inspection report cost?
Strata fee budgeting and planning
The strata manager is in charge of setting out a budget for the year and this will be voted on by members at the AGM. Creating a strata fee budget includes:
- Forecasting expenses: The manager or committee assesses the building's needs. They can use prior budgets to inform the forecasting and their view of planned works and potential works, from day-to-day to bigger repairs.
- Setting aside funds for major repairs: The administrative fund should be close to zero at the close of each year but could be carried into the major repair fund.
It also includes planning for future expenses, such as:
- Capital works projects: A thorough building assessment is a must before setting the budget. This will highlight potential issues for the year and inform how much money should be allocated to capital works projects and the general maintenance plan.
- Unexpected costs: Some may view a large sinking fund suspiciously, but this protects owners from paying special strata levies. A large capital works fund is useful for older buildings with many needs.
Special levies are for unexpected costs that can't be covered by the existing coffers. They vary wildly in amount, but it's worth remaining engaged with your community because these are passed via resolution at general meetings.
Strata fee payment and enforcement
The strata management team has the power to enforce payment and levy fines.
Payment Frequency: Corporations typically issue invoices quarterly, which can be altered or agreed upon in a general meeting. Many boards allow annual payments.
Late Payment Penalties: If you don't pay your strata levies, the board can apply a penalty of up to 2.5% per month. Your agreement will set out a fixed fine rate.
Enforcement Mechanisms: If you still do not pay, they can make a move for debt recovery. It can escalate, with a unit owner forced to sell the property.
Strata fees and property value
It's essential to consider every factor before purchasing a strata property. Property value heavily influences the strata fee, but the opposite is also true.
The average strata fee is between 0.3% and 0.7% of the property's value. As your property value increases, so does the strata fee. Conversely, low strata fees can indicate poor management and maintenance that could negatively impact your property value when the reality of the building's condition comes to light.
Evaluating strata fees when buying a property
If you aren't sure whether the strata fees are fair, compare it with similar buildings in the area. Remember to factor in age, size, location, and amenities for an accurate comparison.
Though strata fees increase over time, it's not usually a drastic increase. However, you should still factor that in when working on your budget. Additionally, enquire about any special levies you may be liable for after purchase.
You can request the strata report if you're seriously interested in a property, but you will pay an administration fee.
Related: What is the cost of moving house in Australia?
Frequently asked questions
Are strata fees tax deductible?
If you own the property and live there, strata fees are not tax deductible.
If you're a property investor, they are often tax deductible. Investors can claim for the expense of managing a property while it is actively rented out. However, consult a tax professional to ensure you keep the proper records to prove the deduction.
What does strata insurance cover?
Residential strata insurance typically covers the building, common areas, gates, fencing, garages, and shared amenities. It covers water and sewage connections, car parks, roofs, ceilings, and floors. Always check the policy to ensure your personal insurance covers what the strata insurance doesn't.
How can I resolve disputes with other strata owners or the strata committee?
If you have a dispute with other unit owners or the committee, consult the official process to resolve it. Every strata body should have an established structure to process disputes and complaints.
Can I challenge a special assessment?
A special assessment is a one-time levy to cover a shortfall in the budget and is generally the result of a large, unexpected cost. You cannot challenge a special levy because these are passed via resolution at general meetings. This is why you should remain engaged with meetings, whether it's via attendance or reading the notes.
The bottom line
Strata living offers a lifestyle that’s full of convenience and perks, all of which are managed through your strata fees. You don't need to worry about maintenance work, like changing lightbulbs in the stairwell or unexpected lift repairs. With a dedicated strata corporation manager overseeing the upkeep, your home and common areas are well-maintained and hassle-free.
Learn more about DiJones. With over 30 years in the business, we have built a name for ourselves in the industry. Visit our website to learn more about how we can help you with your strata living experience, or contact us today for further support.
