Strata fees explained

If you are thinking about buying into a strata complex, the entire process can seem complicated at first.

However, the intention of a strata company is to make your life as an owner easier, which is why you should familiarise yourself with understanding the ins and outs of a strata company and strata levies.

What is a strata company?

When you buy into a strata complex, you become a member of the strata company. Collectively, all the lot owners within a strata complex make up the strata company. In Western Australia, a strata company is bound by The Strata Titles Act 1985 which imposes duties and functions that must be adhered to.

The strata company is responsible for the control and management of the common property area for the benefit of all owners. The strata company must ensure that adequate insurance is in place, prepare budgets and financial statements, and keep records.

As a member of a strata company, you are expected to participate in its management abiding by the by-laws, which are the specific rules of your strata company.

What are strata levies?

Strata fees or levies are your regular contributions as a lot owner that go towards the repair, maintenance, and replacement of the common property that belongs to the strata company.

It's important to understand that while strata levies might feel like an additional tax, it's not the case. For the most part, they cover the same things you'd pay as a house owner except that you're paying for a proportion of a larger building instead of individual costs.

There are three types of levies:

1. Administration levy

Administrative fund levies cover the day-to-day expenses of the strata scheme. This can include things like:

• Cleaning
• Insurance
• Gardening
• Small maintenance jobs
• Building insurance
• Utility bills for common property
• Administrative costs

2. Reserve levy

The reserve levy or also known as the sinking fund typically covers larger capital costs, like roof repairs, repainting of walls or changes to building structure. The reserve levy should also take into consideration unexpected expenses that may not be covered by your building insurance.

Certain sized strata companies (greater than 10 lots or with a valuation of $5 million) are now required to prepare a 10-year plan for the reserve fund. The plan will address the expected expenses that will be incurred during the next 10 years.

Generally, the strata company will start collecting a reserve levy from the very beginning to use as peace of mind for when something comes up.

3. Special levy

A special levy is for emergency or extraordinary cases in which it can't be covered in the reserve or administrative levies. Ideally, most strata companies will try to plan ahead as much as possible, but in some cases where there are insufficient funds in the reserve or administrative funds and there is an extraordinary expenditure, the special levy comes in handy.

This could cover things like major roof repairs, replacement lift or anything that could pose as a risk to the residents' welfare or could get progressively worse if left too long.

These are paid as an additional contribution and approved at a meeting of the lot owners.

How and when are the strata levies decided?

It is up to the strata company to calculate how much money is needed for the administrative levy and the reserve levy through preparing budgets.

Budgets will be presented at the meetings of lot owners for consideration and at that time it will be agreed as to what the total levies will be and the frequency of payment.

Strata fees can vary and there is no ‘one size fits all'. Your strata fees will depend on the size, amenities, age of the complex and current fund balance.

As a buyer you should be making sure that you receive budgets, financial statements and minutes of the most recent meetings of the strata company. These will be attached to the Precontractual Strata Disclosure Statement.

Contact your REIWA strata manager

Many REIWA members specialise in strata management and have become experts in managing a strata company. REIWA members will be up-to-date with the Strata Titles Act 1985 and will be able to make informed, educated decisions. If you are ever in doubt, contact your REIWA strata manager.

See The benefits of using a REIWA strata manager for more information.