Managing strata finances and insurance
Strata committees must be aware of their financial obligations. Use this information to understand budgets and levies, the different funds and insurance, and what to do if something goes wrong.
Key information
- Finances are usually managed by the strata committee treasurer or a strata manager.
- A budget must be set so the owners corporation knows how much money will be needed for the year ahead, which then determines how much the levies should be.
- Levies pay for everyday maintenance and general admin, long term upgrades, as well as insurance and worker costs.
- The owners corporation can approve a payment plan for a strata owner who is struggling to pay their levies.
- You must keep records of your finances and insurance for up to seven years and present them for inspection when required.
Setting up a budget
Every strata scheme must set a budget each year.
This budget should include an estimate of expenses for the year ahead, to help you work out the levies that owners need to be charged. The budget should also set out when levies should be paid – for example, quarterly.
When budgeting, you must take into account the goals and expenses set out in your 10-year capital works fund plan. For example, paying for a complete re-painting in the next five years or making sustainability upgrades.
Your strata scheme should also put money aside to cover emergency events that might happen.
The strata committee discusses and agrees on the budget first. Then, it must be shown and approved at a meeting with the owners.
The treasurer is responsible for managing finances. Or, a scheme can hire a strata manager to do this.
The number and type of expenses is different for every strata scheme.
Expenses often include:
- strata manager and/or a building manager services
- maintenance of common property (including gardens)
- planned and unplanned repairs
- savings towards large one-off projects
- insurance
- cleaning
- electricity, water and council rates.
This is not a complete list. You should carefully consider the needs of your strata scheme when working out the number and type of expenses you may have.
An owners corporation determines that it will have $100,000 of expenses over ten years in levies, planned repairs and insurance. They also want to put aside $50,000 to cover any emergency events and $50,000 to re-paint the common property.
Based on this budget, the owners corporation decides they will need to charge (‘levy’) owners a total of $200,000 over ten years.
Levies
Property owners pay an annual levy (sometimes called a ’contribution’ or ’fee‘). This is to help maintain and repair common property, and to meet running costs.
Levy amounts and frequency are outlined in the budget.
Find detailed information on setting levies, levy notices and managing unpaid levies on the dedicated Levies page.
Types of funds
Administrative fund
Consider this your 'everyday fund'.
You must have an administrative fund by law, which is used to manage the day-to-day expenses of the strata scheme.
This includes maintaining common property, obtaining insurance and other regular expenses such as electricity, water, carpet cleaning and garden maintenance.
Day-to-day expenses of running the scheme include:
- maintenance of the common property
- insurance
- recurrent expenses such as electricity, water, and rates
- pest control
- window or carpet cleaning and lawn mowing services.
Capital works fund
You must have a capital works fund (previously called a ‘sinking fund’), which makes sure capital expenses can be paid for when they arise. An exception is if your two-lot scheme is exempt (refer to more details below).
Capital expenses include:
- painting or repainting common property
- replacing or repairing the common property
- getting, renewing or replacing property of the owners corporation (such as outdoor furniture)
- renewing or replacing fixtures and fittings that are part of common property
- project management, supervision and other related expenses for these works.
One off or major expenditure, such as:
- painting or repainting the common property
- acquiring, renewing, or replacing personal property for the scheme
- renewing or replacing fixtures and fittings that are part of the common property
- replacing, repairing, or upgrading the common property
- any debts, other than amounts covered by the administrative fund
- other capital expenses
- project management, supervision, and other related expenses for these works.
Owners in two-lot strata schemes may not need a capital works fund if:
- the buildings in the two lots are physically detached
- no buildings or parts of a building are located outside the two lots (for example, on common property), and
- the owners corporation passes a unanimous vote that a capital works fund does not need to be set up.
The 10-year plan
Your strata scheme needs to make a 10-year plan of expected major work that will be paid with the capital works fund. This is called the '10-year capital works fund plan'.
The 10-year plan may be made by the treasurer of the strata committee, other members of the owners corporation, or an independent expert that you hire.
The 10-year plan must start from the first AGM of the owners corporation and be reviewed at least every five years. Every change must be approved at the AGM.
The 10-year plan and the amount required in the capital works fund will be different for every scheme. It should consider things like the age of the building.
If an owner moves out of the building, their levies to the capital works fund are not refunded, even if the money has not been spent.
Other funds
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 particular owners to have extra services, without passing on the cost to owners who do not wish to use the services.
Transferring money between funds
The owners corporation can decide to transfer money between funds or make a payment from one fund that is usually covered by the other fund. For example, paying for repairs from the administrative fund.
Where this happens, an owners corporation must hold a general meeting within three months of the transfer or payment to decide:
- whether to reimburse part, all or none of the money paid or transferred, and
- the amount to be transferred from the other fund or levied as a contribution to the fund.
The owners corporation does not have to repay the money within the three months.
Decisions must be made at a general meeting by resolution (majority vote).
Insurance
The treasurer is responsible for insurance, if this job has not been delegated to the strata manager.
Insurers often sell strata insurance packages which include optional extra policies. While these extra policies are not mandatory, they may be good for your scheme.
A strata manager can help you find insurance. They must provide at least 3 separate insurance quotations for you to consider. If it’s not possible to get three quotations for your scheme, they will tell you in writing.
Not having the right insurance can put the strata scheme at risk of not being able to pay for unexpected damage or legal costs.
What types of insurance are needed?
Strata insurance is mandatory in NSW. Your strata scheme must have:
Building insurance
Building insurance covers you for:
- replacing or reinstating the building to as-new condition
- paying architects or other professionals needed to repair the building
- removing debris.
To make sure your building insurance always provides the right level of cover, regular building valuations are essential. You should get a new building valuation every 2 to 5 years by contracting a qualified valuer.
You can get building insurance by contacting an insurance company or by using an insurance broker. The Insurance Council of Australia can help you find the right insurer on its website.
Owners in two-lot strata schemes may not need strata building insurance, read more about the exemptions.
Public liability insurance
Public liability insurance covers responsibility for property damage or an individual’s injury or death. For example, if the owners corporation was sued because someone was injured in the scheme. The minimum amount of cover required is $20 million.
You can get public liability insurance by contacting an insurance company or by using an insurance broker. The Insurance Council of Australia can help you find the right insurer on its website.
Work health and safety insurance
Work health and safety insurance covers you if a worker on your property sustains a work-related injury or disease.
You will not need this type of insurance if:
- your schemes does not directly employ any workers (this excludes contractors), and
- the complex is only used for residential purposes.
Owners in two-lot strata schemes may not need strata building insurance if:
- the buildings in the two lots are physically detached
- no buildings or parts of a building are located outside the two lots (for example, on common property)
- the owners corporation passes a unanimous vote that they don't need to get building insurance.
In this case, they may choose to get individual building insurance instead.
Optional insurance
The types of insurance below are optional extras that insurers often include in strata insurance:
- shared contents: covers damages to contents on common property, such as washing machines, gardening or gym equipment.
- temporary accommodation: covers the cost of temporary accommodation for property owners if their property is damaged and can’t be lived in.
These policies are not mandatory but may be beneficial for your scheme.
Requirements for strata managers
When sourcing insurance quotes, your strata managing agent must now give quotes with clearly set out details, including:
- the base premium amount
- any commission amounts, broker fee amounts and who these amounts are ultimately paid to
- levy amounts paid to the government.
A ban applies on strata managing agents getting a commission if the owners corporation obtains the insurance quotes and arranges for payment, without the strata managing agent’s help.
Record keeping and reporting
You must keep records of your financial management and insurance for up to seven years.
You must be able to show these records to an owner or inspector if you are asked to.
Records created from 11 June 2024 must be kept electronically. A scheme may choose to keep physical as well as electronic records.
Need more help?
Contact Fair Trading
If you have any further questions about strata, you can contact Fair Trading via phone or in-person at a Service NSW centre.
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