How To Calculate Body Corporate Levies?

In Victoria, body corporate levies / owners corporation levies are calculated by taking the total budget and dividing by the total lot liability for that given owners corporation. Each lot owner’s levy contribution can be then calculated by multiplying the lot liability for that given lot (per the OC report which can be obtained from Landata Victoria).

Committees and OC managers always need to ensure that levy contributions are correctly calculated to minimise issues and disputes later on. Section 23 (3) of the Owners Corporations Act 2006 states that annual fees set must be based on lot liability”.

Components of Body Corporate Levies

When an owner or investor receives their levy notice they will see two key components – the Admin (i.e. administrative / operating fund) and the ‘Sinking’ (i.e. the maintenance fund).

Section 23 of the Owners Corporations Act 2006 states:

  1. Owners corporation may levy annual fees
    (1)  An owners corporation may set annual fees to cover—

    (a)  general administration; and
    (b)  maintenance and repairs; and
    (c)  insurance; and
    (d)  other recurrent obligations of the owners corporation.

    (2)  If the owners corporation has an approved maintenance plan, the annual fees must include fees that are—

    (a)  designated for the purpose of the maintenance plan; and

    (b)  sufficient to allow the maintenance plan to be implemented.

Unit Entitlements and Lot Liability

In Victoria, a distinction is formed and made between lot entitlement and lot liability. The Owners Corporations Act 2006 defines these as:

lot entitlement in relation to a lot affected by an owners corporation, means a number specified in the plan as the lot entitlement for that lot, expressing the extent of the lot owner’s interest in any common property affected by the owners corporation.

lot liability in relation to a lot affected by an owners corporation, means a number specified in the plan as the lot liability for that lot, expressing the proportion of the administrative and general expenses of the owners corporation which the lot owner is obliged to pay.

Budgeting Process

Section 72 (2) (e) of the Owners Corporations Act 2006 requires for the proposed annual budget of the owners corporations to be included on the Notice of AGM for voting at the AGM.

The setting of the annual budget for buildings in their second year and beyond is made easier as there then exists prior year’s actual expenditures to act as reference point for the current year’s budget. The setting of the annual OC budget should be a consultative and interactive process between the Committee and the OC manager.

Shared Expenses and Common Property

Share expenses for common property, amenities, and facilities are by shared by all owners on the basis of lot liabilities. There can however be additional costs that get incurred by the owners corporation as a result of particular lot owners, occupiers, or uses.

Section 23 (3A) and Section 23A  of the Owners Corporations Act 2006 makes allowance for these scenarios as it enables that OC to pass onto any costs that would be unfair to be shared solely based on lot liabilities. The aim and importance with communal living is about equitable allocation.

Sinking Fund Contributions

Under the Owners Corporations and Other Acts Amendment Act 2021 which took effect from 1 December 2021, Tier 1 and Tier 2 owners corporations in Victoria must prepare and approve a maintenance plan. Tier 1 and Tier 2 owners corporations in most cases are likely to engage a specialist building consultant or quantity surveyor prepare a maintenance report and plan for their building.

Owners Corporations in Victoria that are classed as Tier 3 to 5 are not required to prepare and approve a maintenance plan but can choose to do so.

Administrative Costs

Administrative costs are very much driven by the building and what assets, facilities, and amenities the building has. We have seen buildings with 30 lots with an annual gardening expense of $32k as the building was required to have a vertical garden as part of its planning permit.

Broadly speaking, administrative costs can classified into:

  • key service contracts (i.e. cleaning, caretaking, gardening, ESM servicing, lift servicing, garage door servicing, pump servicing);
  • repairs and maintenance (i.e. electrical, plumbing, gate repairs, fence repairs);
  • insurance (i.e. building replacement, officer’s bearers’ liability, fidelity cover, machinery breakdown etc.); and
  • administrative & compliance costs (i.e. the cost of the OC manager including mgmt. fees, disbursements, and additional fees/charges, cost of ATO compliance including cost to lodge BAS/tax returns).

Sample OC budget showing administrative expenses

Special Levies

Owners corporations may need to raise special levies when there is a shortage of funds or unexpected expenditure. Special levies can generally not always popular as to owners and investors it’s an unplanned and unanticipated costs that can sometimes be significant.

Special levies can best avoided through proper budgeting, cashflow planning, and sound OC management input.

Changes in Levy Calculation

Owners corporation levies in recent years have been subject to inflationary pressures and can often be impacted by broader economic factors. The owners corporation in running its annual administrative budget is after all going to the market and procuring services and services contracts.

The other big that has driving OC budget and levies has been insurance and the insurance market. In some cases, flammable cladding and other significant risks have increase OC insurance premiums by 400% or more.

As always, communication and transparency with owners is key. We’ve seen proactive Committees and invested OC management companies spend the time to inform and educate owners through newsletters and information sessions.

 

Conclusion

The goal of owners corporation levies is to ensure that the building runs smoothly, services and standards are maintained, and property values are upheld. This can be achieved (and probably can only be achieved) through good governance.

Good governance requires interested owners, proactive OC Committees, and a professional owners corporation management company (and manager).

Since January 2014, Strata Consultants Melbourne has specialised in helping OC Committees to make the change to good, professional OC management. If you’re happy with the running and management of your OC, speak to us via office@strataconsultants.com.au or on 1300 917 848.

 

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.
Posted
February 06, 2024
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