How to gain clarity on where your strata levies are really going

A common misconception is that the levies paid by owners of apartments are going to the Strata Management company that looks after the building.  Many people believe that the strata company sets the amount, is responsible for any increases, and generally doesn’t do much for receiving such large fees.

While it’s easy to see why many people would make this assumption, the fundamental flaw in this thinking, is the lack of understanding that apartments, like houses need to be maintained.  Generally it won’t cost as much as a house because the group of owners are pooling their money together, however there is still a cost.  The gutters need to be cleared, common areas need to be cleaned, machinery such as pumps in the carpark need to be serviced, plumbers and electricians need to attend as issues arise to name a few.  As with having home insurance, there is also building insurance that needs to be taken out.  There is also a requirement by law that the building keeps a capital works fund of money for major works that may be required such as repainting the building. All of these items are paid for out of the owners levy’s.

The truth is that the strata company is only the custodian over the funds.  They simply manage the money on behalf of the Owners Corporation (owners in the building), to ensure that the building is maintained adequately, to protect asset growth for all owners.  The fee that the strata company takes is usually around 8-10% of the overall levy amount (the maintenance is usually 45-50%) and is paid for services such as; co-ordinating repairs and maintenance, facilitating building compliance and legal requirements, project management, managing and chairing the Annual General Meeting, collecting levies, issuing debt recovery notices, paying building bills, Accounting (tax returns & BAS), managing and issuing keys, secretarial tasks and being the communication point of contact.  The details of any fee’s going to the strata company are required by law to be clearly set out in the management agreement which is agreed upon appointment for the engagement of these services.

It is recommended that if you are interested in understanding what your strata levies are being used for, there are a number of actions you can take.  Most strata managing agents will have a portal that you can gain access to which will provide details in relation to expense reports and invoices paid by the building.  This will give you a feel for what the major expenses are.  You can also nominate yourself to go on the Strata Committee (represented group of owners that make the day-to-day decisions).  The committee is elected at the Annual General Meeting, so you would first need to find out when yours is scheduled.  Doing this will give you a better understanding on the works being undertaken and the expenses incurred.  You will also have greater control as a nominated committee member in relation to these decisions.

There are laws to protect owners funds and ensure that the strata company isn’t misappropriating the funds.  The funds are required to be reconciled daily, and can be independently audited (this is mandatory for larger buildings and at the instruction of the Owners Corporation for smaller buildings).  The strata company must provide access to the financial information of the building for any owner (usually provided via the portal).  Most strata companies are ethical and want transparency so that they develop a relationship built on trust.  However, if you don’t like something that you see in relation to what the money is being spent on, or believe that information is being deliberately withheld, it’s best to take it up with a nominated member of the Strata Committee and then the strata company before taking further action.  If you are still unsatisfied, there are legal avenues that you can take via NCAT.

 

Whilst it’s easy to see how at a glance the strata management company could be assumed to be responsible for taking or hiding the levies paid by apartment owners, an understanding of how much it costs to maintain a building will quickly put this assumption to rest.

With a greater informed understanding of the small % of funds that the strata company takes of your levies, the biggest costs savings can often come in investing in a slightly more expensive expert and professional strata company to manage the other 90-92% of the funds on your behalf.