Effective management of a body corporate relies heavily on levies, yet misconceptions surrounding these unavoidable expenses can often result in misunderstandings.
In this article, our goal is to dispel the top 5 myths surrounding body corporate levies. By gaining a deeper understanding of these crucial financial contributions, we can foster less resistance to collection and necessary increases.
Contrary to common misconception, body corporate levies are not the fee of the body corporate manager. All levies are deposited into a dedicated business bank account held in the name of the building and used to cover the expenses related to the body corporate.
The allocation of these funds is determined by the body corporate committee, not the body corporate manager.
Although the body corporate manager is responsible for the administrative task of issuing the levy notices, they do not set the levies or directly receive the funds.
The reality is levies are collected in advance to cover the shared expenses of the building and the body corporate. So, when expenses increase, it becomes necessary to collect more funds in order to cover the additional costs.
Where do these additional costs come from? No different than a regular household, they’re generally driven by factors such as rising labour and materials, unforeseen repairs or damages, increasing insurance premiums, and increases in utility expenses like electricity and water.
See our article on rising building costs and sinking fund levies.
Many people often question why their levies don’t reflect the size of their small building. And while the total funds needed to maintain a small complex may indeed be less than a larger one, the amount per owner might not be.
Levies are calculated on the costs required to maintain the body corporate, the building, and the infrastructure around it, not the size of the building or the number of lots in it.
For instance, the cost to maintain a swimming pool is generally similar, regardless of whether it serves a single private house, five townhouses, or twenty townhouses. Granted, the chemical costs might be higher with more people swimming, but a larger development with say twenty townhouses can more affordably distribute the costs of the pool and its maintenance across more owners.
This applies to many expenses within a body corporate, so often smaller lots pay higher body corporate levies, simply because they lack the economy of scale.
Remember, sinking fund levies are not for immediate repairs, but rather to accumulate savings for inevitable future repairs.
The sinking fund report, used as a guide to set the sinking fund levy, is most often provided by a quantity surveyor, and based on a projected 15-year timeline. These reports take into consideration inflation, and as such will provide a natural increase each year, even for newer developments.
Upgrades or earlier-than-anticipated repairs can also crop up unexpectedly, creating a gap in the sinking fund savings plan, resulting in increased levies to compensate for the shortfall.
Levies are a fundamental aspect of owning in a strata scheme. The operation of the body corporate, and all the maintenance and improvement of the shared property are funded by levies.
Without levies, it would be impossible to cover ongoing expenses and ensure the longevity of the property. It is crucial for owners to fulfill their responsibility by paying their levies promptly to ensure the financial well-being of the body corporate.
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