A couple of weeks ago we wrote about the importance of obtaining a pre-purchase strata inspection report, you can read about that again here. One aspect covered by a strata inspection report is the levies payable in a strata scheme.
Levies and unit entitlements
Levies are payable by all lot owners in a strata scheme. The levies payable in a scheme are based on the unit entitlement. So if your lot entitlement is 10 from an aggregate of 100 in a strata scheme, you would be liable for 10% of any levies raised. Levies are payable into the owners corporation’s administrative fund and sinking fund. A sinking fund is best thought of as the surplus monies held for the benefit of the owners corporation for a rainy day, i.e. an unexpected expense such as urgent maintenance repairs or unexpected litigation.
A special levy is typically raised by an owners corporation to cover an unexpected expense, usually in circumstances where there are insufficient funds in the sinking fund to meet that expense or because the owners corporation decides by way of a majority vote not to utilise the funds held in the sinking fund. Special levies are often raised for one off large expenses, such as painting the entire complex, paying for emergency repairs such as a plumbing issue, paying for unexpected litigation or rectifying large defects which are not attributable to the developer. Special levies are payable on top of the usual quarterly levy payments and if not paid on time, attract interest in the usual way in accordance with the legislation.
Tips for a prospective purchaser
It is essential that all pre-purchase due diligence is carried out by a potential buyer before entering into a binding contract for sale. One important part of this due diligence is obtaining a pre-purchase strata inspection report. This will cover things like the levies payable in the strata scheme, whether special levies are raised regularly by that strata scheme (as the records contain strata meeting minutes dating back a certain period) and whether or not approval has been granted in an AGM or extraordinary meeting of the owners corporation for a special levy to commence on a date in the future. Any prospective purchaser should be armed with all of this information prior to exchange. Most buyers would not like to buy into a strata scheme only to be hit with an unexpected special levy which in some cases can be double the quarterly levies.
Please call us on 02 8005 3955 if you are on the property hunt for a unit in a strata scheme and you want to find out more about the pre-purchase due diligence to be carried out. This is one aspect of the pre-purchase enquiries to be made, or if you have already carried out all of your pre-purchase inspections and need a pre-purchase contract review or pre-auction contract review, get in touch with our team today.