Owners Corporation Levies and Fees
Owners Corporation fees, or Body Corp fees or levies, are one of the most contentious topics when it comes to owning in a strata community.
A lot of people think that strata levies are paid to an owners corporation manager or provider, but this is not correct. Although your manager is responsible for sending out levy notices, levies are paid directly to your owners corporation’s bank account, and the monies form part of the administration and a maintenance funds that are controlled by the committee on behalf of the owners corporation.
When you buy a strata community, you share access to utilities and common areas of the building such as gymnasiums, pools, foyers, hallways, recreation rooms and so on, with other lot owners. As shared owners of these amenities, lot owners are collectively responsible for their management, maintenance and repair. They must also pay their portion of utility costs.
Annual fees cover general administration, maintenance, insurance and other ongoing costs.
Lot owners are charged their share of annual fees according to their lot liability. A lot liability is a schedule created by a building surveyor and set out in the property’s plan of subdivision. It includes a list of administrative and general expenses that each lot owner is required to pay based on the size of a lot compared to others in the building. For more information on lot liability, view Common Terms.
To determine its fees for the financial year, your owners corporation will need to prepare an annual budget. This means the committee or a delegate must estimate the cost of administration, maintenance, insurance and contributions to the maintenance plan well before the annual general meeting each year.
The owners corporation must send its proposed budget to members with the notice of the annual general meeting, where they will determine annual general fees.
A maintenance plan helps the owners corporation to budget for necessary works. A detailed plan can help you win approval for funds at the annual general meeting. For more information about preparing a maintenance plan, view Preparing for a maintenance plan.
If your owners corporation has a maintenance plan, it must also have a maintenance fund. The owners corporation can decide what, if any, portion of the annual fees should be contributed to the fund, how it is paid and when payment is due (usually quarterly).
We are often contacted by owners who believe they are paying more than they should. Whilst this may be the case on rare occasions, their believe is due to a lack of clarity on where their money goes.
So how much should an owner expect to pay?
There are a number of factors that determine how much each lot owner must pay in owners corporation fees.
Owners corporation fees cover expenses related to the daily running and maintenance of common property areas and an amount for forecast maintenance and improvement works.
Ongoing operational and maintenance costs can include the cost of a strata management service, cleaning and gardening contractors, shared utility bills, insurance, and regular plant and property maintenance. Generally, the bigger the property, and the more amenities available and services provided by the owners corporation for lot owners to use, the higher these costs will be.
Lot owners must also contribute an amount to cover future planned works, such as facility upgrades and renovations, and emergency repair and breakdown of property, plant and equipment.
Owners corporation fees are usually charged quarterly. It’s best to plan these expenses in advance, taking into account mortgage repayments and council rates to make sure you have capacity to pay them by the due date.
For those considering buying into a strata community, a good guide on what owners corporation fees you should expect to pay can be found in the previous year’s financial reports. These reports can be purchased online or obtained from your conveyancing lawyer. They contain information on the financial status of the owners corporation, pending and past building works, the cost of current levies and fees, the likelihood of extra levies, insurance costs and owners corporation building rules.
So who decides how much money is to be raised each financial year?
Owners corporation fees are determined as part of the annual budgeting process.
Budgets are usually prepared by the owners corporation manager, as they are the most experienced and with an understanding of the costs associated with running and maintaining strata properties.
To forecast an accurate budget, previous expenses, planned future maintenance works, CPI increases, legislative changes, insurance increases and a levy for unforeseen or emergency expenses are incorporated.
The proposed budget is presented at the annual general meeting for owners to discuss and adopt. From there, the fees are then calculated according to each owner’s lot liability.
Fee notices, which must be in an approved form, are then issued to lot owners and are, generally, to be paid within 28 days of the date on the fee notice.
Penalty interest may be charged on overdue fees if the owners corporation has voted to charge interest for late payments. The fee notice must contain the interest rate that is payable for overdue fees. The maximum rate of interest that an owners corporation can charge on overdue fees is determined by the Penalty Interest Rates Act 1983 and can be found on the Department of Justice and Community Safety website.
If the money owing is not paid within 28 days after the date of the fee notice, the owners corporation may send a Final Notice to the lot owner. It must state the overdue fees, penalty interest on the overdue fees (if charged), the amount of penalty interest that will accrue daily until it is paid, and the right of the owners corporation to take legal action to recover the amount due if not paid within 28 days of the notice.
It is important to note that owners who do not pay fees lose their right to vote on ordinary resolutions.
A maintenance fund is a financial allocation to cover repair and replacement costs associated with the owners corporations maintenance plan
An owners corporation maintenance plan is most commonly a 10-year plan for replacement or repair of major capital items, such as replacing roofing or repainting buildings. It outlines the present condition of the items, when items or components will require repair or replacement, the estimated cost of repair or replacement and the expected life of these components. This plan must detail anticipated repair and replacement costs and timing for all major capital items over the next 10 years. To be implemented, it must be approved by an ordinary resolution at a general meeting.
Strata properties containing more than 100 lots, or owners corporations that raise more than $200,000 in fees are called Prescribed Owners Corporations” in Victoria. It is compulsory for prescribed owners corporations to have a maintenance plan, although we recommend strata properties comprising more than two lots have a maintenance plan to make sure you budget to set aside enough money to repair and replace property, plant and equipment over time.
Special fees or charges cover extraordinary or unexpected expenditure; for example, to urgently repair the building or to cover other costs such as legal action against the owners corporation.
If the amount of the proposed special fees is more than double the amount of the owners corporation’s annual fees, it must be approved by a special resolution. A special resolution requires support from at least 75 per cent of all lot owners or lot entitlements.
Lot owners are charged special fees according to their lot liability, unless works are being undertaken that will only benefit one, or some (but not all) lots.
In such a case, special fees are charged using the ‘benefit principle’.
Applying the benefit principle
The benefit principle simply means that those who benefit more, pay more. It does not always need to be applied in an exact way if it is not practical to do so. The assessment only needs to be considered reasonable.
Applying the benefit principle may not always result in lot owners paying other than according to their lot liability.
- when the greater benefit of works to a lot owner are offset by their having paid higher annual fees (because of their higher lot liabilities) or
- when works on one lot are offset by indirect benefits to the other lots; for example, by raising the value of the entire building or by reducing the possibility of legal actions against the owners corporation.
Tax deductibility of Owners Corporation fees
Strata fees that cover administrative outgoings and maintenance plan expenditure are typically tax deductible, as long as you keep a record of expenses.
However, if an expense is considered to be a special fee to cover major capital works, these fees aren’t deductible. You should always seek specialist tax advice before deciding to claim tax deductions for any fees or charges paid to your owners corporation.
Late payment of fees and charges
Lot owners who do not pay fees, lose the right to vote on ordinary resolutions. They can attend owners corporation meetings but can only vote on special or unanimous resolutions. For more information on these resolutions, view Voting and ballot guidelines.
An owners corporation can:
- charge penalty interest on money owing if this is authorised by resolution. For more information, view the penalty interest rate information on this page
- take action to recover debts in the Magistrates’ Court of Victoria or at the Victorian Civil and Administrative Tribunal (VCAT).
An owners corporation can also levy fees to recover recurrent expenses from individual lot owners.
These fees must be based on lot liability.
Example: A lot owner has 10 per cent of the lot liability and has not paid their fees. The owners corporation manager charges the owners corporation $33 for processing the late payment, as allowed by the manager’s contract of appointment. The lot owner can only be charged 10 per cent of the late payment fee, in this case $3.30.
Note: An owners corporation cannot charge a lot owner any other fees or charges, such as an ‘administration fee’, for overdue owners corporation fees.
Further, an owners corporation manager cannot require a lot owner to pay any fees due to the manager under the contract.
A manager’s contract of appointment is a contract between the owners corporation and the manager. This means that the owners corporation is subject to the contract, not the individual lot owners.
The contents of any contract of appointment must comply with the Owners Corporation Act 2006 and the Owners Corporations Regulations 2018.
Owners corporation certificate fees
On 1 October 2014, a new fee structure was introduced, setting out the maximum amount an owners corporation can charge for issuing a certificate.
If a lot is affected by more than one owners corporation, a separate certificate may be issued for each and the owners corporation may charge a separate fee.
There are discounts for additional certificates, when required as part of a sale of land from the same owners corporation manager.
Fees for copies of register and records
On 1 October 2014, a fee structure was introduced which sets out the maximum amount an owners corporation can charge for providing copies of the register and records.
The value of a fee unit is $15.03 for 2021-22. This amount will change at the start of each financial year. For more information, visit Indexation of fees and penalties – Department of Treasury and Finance.
We recommend first trying to resolve any disputes about fees and charges through the owners corporation’s internal dispute resolution process. For more information, view our Complaint handling in your owners corporation page.
If the matter remains unresolved, a lot owner can apply to the Victorian Civil and Administrative Tribunal (VCAT) for a ruling.
If an owners corporation is in dispute over a fee, it must first provide the required fee notices before applying to VCAT for a ruling.