Managing strata finances and insurance
Strata committees must be aware of their financial responsibilities. Understand how to set 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, this then determines how much the levies should be.
- The 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.
When budgeting, you must take into account the goals and expenses set out in your 10-year plan. For example, paying for a complete re-painting in the next five years or making sustainability upgrades.
You 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 agreed on 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:
- fees to hire a strata manager and/or a building manager
- 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 estimates that it will have $100,000 of expenses over ten years in fees, 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 corporation decides they will need to charge (‘levy’) owners a total of $200,000 over ten years.
Setting 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.
The budget sets out the total levy charges to owners. The budget should also set out when levies should be paid – for example, quarterly or annually.
Levies must be charged according to each property’s ‘unit entitlement’.
An owners corporation works out that it needs $200,000 over 10 years. This means it would need to levy (raise) $20,000 each year.
This scheme has a total unit entitlement of 200.
To calculate the levies, the $20,000 for the year should be divided by the total unit entitlement number (200). This will show that $100 is needed for each point of unit entitlement.
Therefore, every lot owner must be charged $100 for each point of unit entitlement they have. There are 20 lots in the scheme.
Five lots have a unit entitlement of 15. They must each pay $1,500 in levies that year.
Ten lots have a unit entitlement of 10. They must each pay $1,000 in levies that year.
Five lots have a unit entitlement of 5. They must each pay $500 in levies that year.
Altogether, this will make up the $20,000 needed for that year.
Unit entitlement represents your share of the strata scheme and can be different depending on the property.
For example, a small apartment might have a unit entitlement of 10, while a larger apartment might have a unit entitlement of 15.
A person with higher unit entitlements has a stronger voting power, but also pays higher levies.
You can find your unit entitlement by looking at your property on the strata plan.
Before the meeting
The secretary must send an agenda to the owners. This must happen at least 7 days before any AGM. The agenda must include a motion to accept the financial statements, including estimated levies for the next year.
You should provide your proposed budget with the agenda. This helps owners understand what to expect.
At the meeting
The budget should be shown with the scheme’s financial statements to give a clear idea of why the proposed levy amounts are needed. After reviewing the financial statements and the proposed budget, owners vote on a ‘motion’ to approve them.
Over 50% of owners must vote in favour to approve them.
The owners corporation can decide how often lot owners pay their levies.
For example, many strata residents may prefer paying smaller amounts more frequently. They would pay these instalments instead of paying one lump sum each year.
After the meeting
Levies must be kept by the strata committee in separate funds (see below).
The owners corporation must give lot owners written notice of the levies to be paid including at least 30 days’ notice to pay.
Special levies
The strata committee can vote to introduce a ‘special levy’. It may want to do this when there is not enough money to cover expenses, such as major repairs.
Special levies must be introduced at a general meeting of the owners corporation. It follows the same steps outlined as for introducing annual levies.
Like annual levies, special levies are worked out based on the unit entitlement of each owner.
For emergency repairs to the common property that are necessary to mitigate a serious and imminent threat to the health or safety of the residents, written notice of the levies to be paid including at least 14 days’ notice to pay must be given.
Unpaid levies
If an owner does not pay their levies within one month of the payment due date, they are charged interest at the rate of 10% simple interest per year.
The owners corporation or strata committee cannot increase or decrease the interest, but can make a general resolution to charge no interest.
Payment plans
If an owner is experiencing financial hardship and cannot pay their levies on time, the owners corporation can arrange a payment plan for an owner owing money.
Payment plans usually last for up to 12 months but can be extended if needed. Both parties need to agree on how best to manage the repayments.
You will then need to pass a resolution at a general meeting.
The strata committee should give the owner a statement of the 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:
- the owner's 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 the owner 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.
Support for owners experiencing financial hardship
National Debt Helpline
The National Debt Helpline provides information about payment plans to help owners who are struggling to pay their strata levies, and can connect them to a free financial counsellor.
Visit the National Debt Helpline website or call 1800 007 007.
Banks and financial institutions
Banks and mortgage lenders have various options to help customers facing financial hardship which may include:
- freezing the mortgage for a period of time
- adding the cost of the levies to an existing mortgage
- enabling redraws on an existing mortgage
- debt forgiveness
- mortgage assistance and financial hardship relief options.
For example, if a strata owner negotiates with their bank to add the cost of a levy to an existing mortgage, they may benefit from:
- a lower interest rate (compared to the 10% interest rate prescribed by strata law), and
- longer payment terms (compared to those that apply to strata levies).
Strata owners who do not have a mortgage may be able to draw down on the equity of their home using a reverse mortgage product offered by some banks and financial institutions.
You can refer strata owners who may be facing financial hardship to the Strata levies, finances and insurance page to learn about different steps they can take if they are struggling to pay levies.
Further action
The owners corporation can take action in the NSW Civil and Administrative Tribunal (if other proceedings are before the Tribunal) or a court to recover the levies, any reasonable recovery costs and any interest owing. Action can be taken even if a payment plan exists.
The owners corporation can only do this if it has given the owner 21 days’ written notice of the action. The notice must include the amount of the contribution, interest and expenses to be recovered, and how the owners corporation proposes to recover the money.
An owner may also be ordered to pay reasonable costs based on what the owners corporation has spent to recover the unpaid levies. However, reasonable costs can only be recovered by order of the NSW Civil and Administrative Tribunal or court.
Generally, taking action in court should be a last resort.
Having a lot owner on a payment plan may affect other strata owners, who may need to cover the gap in funds. If so, the owners corporation will need to consider how it will manage its finances, including whether it needs to seek alternative funding sources.
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, providing insurance and other regular expenses such as electricity, water, carpet cleaning and garden maintenance.
Day-to-day expenses of running the scheme including:
- 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’) by law, which makes sure capital expenses can be paid for when they arise.
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 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
- fees for 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 certified 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:
- voluntary workers insurance: covers any damage that the owners corporation may become responsible for when a person does voluntary work (work without fee or reward) in the building or on common property.
- 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.
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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