Strata levies, finances and insurance
Strata schemes must follow rules about how they manage finances. These include rules about levies, funds and planning for the future.
Levies are set at the annual general meeting (AGM) and paid into 'funds'.
An administrative fund is used for day-to-day management.
A capital works fund is used for building works.
A capital works plan sets out potential works for the next 10 years.
Large schemes and two-lot schemes have different rules.
Did you know
All owners are charged a yearly levy (sometimes called a ’contribution’ or ’fee‘).
This pays for a range of costs that keep your complex (scheme) running smoothly and in good condition, such as:
- maintenance and repairs to the building/s and common property
- administration costs (for example, management fees, insurance, or work costs)
- utilities to any common areas (for example, electricity to run elevators or lighting).
The treasurer or strata manager works out the levy amount that each owner pays. This is based on their ‘unit entitlement’. The owners corporation decides how often you need to pay levies.
‘Unit entitlement’ is a number assigned to your property that’s based on its value in the scheme when the scheme was first registered. This is usually before the first residents move in.
It is different from your property’s number or address. The strata plan lists each property’s unit entitlement. You can get a copy of the strata plan by contacting a member of the strata committee.
Not all lot owners have the same unit entitlement – it is based on the value of the property they own.
For example, there are two lots in a strata scheme. One lot may be larger, or is placed in a better position, and so has greater value than the other lot. If there is a total unit entitlement in the scheme of 100, then the more valuable property’s unit entitlement may be 60 and the other property is 40.
If you don’t pay your levies within one month of the due date, you are charged interest. This is at the rate of 10% simple interest per year.
The owners corporation can’t increase or decrease the interest. It can decide to charge no interest.
The owners corporation can arrange a payment plan for an owner owing money.
Payment plans usually last for up to 12 months. The owner can ask to extend this period if they need to.
If you still don’t pay your levies, the owners corporation can take legal action to recover the levies and any interest that you owe.
Legal action should be a last resort.
As a result of such legal action, you may also be ordered to pay reasonable costs based on what the owners corporation has spent to recover the unpaid levies.
First, the owners corporation will need to ask the strata committee or strata manager to issue a reminder (sometimes called a recovery letter) giving at least 21 days’ written notice.
It can then proceed with legal action, such as taking you to the NSW Civil and Administrative Tribunal.
You can ask the strata committee to give you a statement for your payment plan. The statement should show what has been paid, what's still to be paid and any interest.
The payment plan statement must also include:
- your name, address and property number
- amount overdue including interest
- payment schedule and how it will be paid
- strata committee or strata manager contact details
- statement allowing you to ask to extend the payment plan – although the owners corporation doesn’t have to agree to this
- details on potential recovery actions available outside of the payment plan.
Every strata scheme must have funds. They are set up to keep the levies paid by owners.
The everyday fund
An administrative fund manages the day-to-day costs of the strata scheme.
This includes maintaining common property, paying for insurance and other regular costs such as electricity, water, carpet cleaning and garden maintenance.
To learn more, see the managing finances and insurance page.
Capital works fund
The fixing and maintaining fund
A capital works fund (previously called a ‘sinking fund’) is used to pay for capital expenses when they happen.
Capital expenses include:
- painting or repainting common property
- replacing or repairing the common property
- getting, renewing or replacing property of the owners corporation (for example, outdoor furniture, a table in the foyer)
- renewing or replacing fixtures and fittings that are part of common property
project management, supervision or other related expenses for these works.
To learn more, see the managing finances and insurance page.
The 10-year plan
Planning for something big
Your strata scheme needs to make a 10-year plan of expected major work that will be paid with the capital works fund.
The 10-year plan must start from the first AGM of the owners corporation and be reviewed at least every five years. The plan must be considered at each annual general meeting (AGM). Any changes, revisions or new plans will require a vote.
The 10-year plan and the amount required in the capital works fund will differ between strata schemes and should consider things like the age and features of the building.
Sometimes, the owners corporation may make agreements with owners to provide some services. For example, Pay TV services or high-speed internet.
As these services are voluntary, the owners corporation can create funds specifically for them. To do this, the owners corporation must pass a resolution at a general meeting.
Interested owners can then choose to pay the costs of the service into the fund to access it.
This allows extra services to be provided to particular owners, without passing on the cost to owners who do not wish to use the services.
The strata committee is responsible for making and keeping all financial records for at least seven years.
It also needs to make new ones for every reporting period (usually 12 months). The start and end dates for the reporting period can change slightly year-to-year, so check with the owners corporation secretary or strata manager.
A key financial statement for each fund is sent to every owner before the annual general meeting. Many strata schemes also choose to send out the full financial statements for the last reporting period with the notice of the AGM.
A ‘key financial statement’ is a record that must be sent to each owner before every annual general meeting.
The key financial statement must include::
- the reporting period
- name of fund
- balance carried forward from previous reporting period
- total income received during reporting period
- total interest earned by fund during reporting period
- total contributions paid during reporting period
- total unpaid contributions payable for reporting period
- total expenditure for maintenance during reporting period
- total expenditure for administration costs during reporting period
- balance of fund at end of reporting period
- list of principal items of expenditure proposed for next reporting period.
Rules for different types of schemes
Some types of schemes have different rules for finances.
Two-lot schemes have rules such as:
- accounts and finance statements do not need to be audited
- a capital works fund may not be needed if the strata buildings are physically detached, the two-lot scheme does not include any additional buildings, and the owners corporation passes a unanimous vote that a capital works fund is not needed.
Large strata schemes with more than 100 lots have rules such as:
- financial accounts must be audited
- annual budgets must list expected costs and what they are for
- the owners corporation must get at least two quotes for items over $30,000
- spending on items should not be more than 10% over the amount estimated at the AGM, unless the owners corporation agrees to remove the limit at a general meeting.
Your strata scheme must have certain types of insurance. Individuals are responsible for insuring their personal property (for example, contents insurance). For details, visit the Managing strata finances and insurance page.
Learn about the different types of strata meetings, including annual general meetings and strata commenting meetings, and why you should get involved.
Understand how to set budgets and levies, the different funds and insurance, and what to do if something goes wrong.
Understand the roles of the owners corporation and strata committee, strata manager and building manager.
Minor repairs can generally be managed by the strata manager or strata committee without a meeting. Major or unplanned repairs may need a meeting to get an agreement on what to do.
Find out about strata announcements, recently published resources and more. You can also subscribe to other newsletters of interest.