What are body corporate levies?
As a collective of unit owners, you are naturally responsible for the management, repair or replacement of your common property. If something goes wrong, the owners need to fix it.
The body corporate sets a projected budget, which will cover what they can reasonably foresee will need attention in the near future. Each owner is then charged a proportional share of the cost. These are body corporate fees. They are a common pool of funds which can be accessed to pay for necessary short-term or long-term building expenses.
All lot owners pay body corporate levies, and in return the body corporate will handle the management and upkeep of the building on behalf of all the owners.
What do body corporate levies cover?
Body corporate levies are used to cover essential items and services such as insurance, electricity, security, cleaning, repairs and maintenance etc. The funds generated through body corporate levies are usually spread between three different budgets: the Administrative fund, the Insurance fund and the Sinking fund.
The Administrative fund covers:
- Maintaining common property and assets, such as pool cleaning and garden maintenance
- Regularly recurring expenses such as pest control, bank fees, professional fees etc.
The Insurance fund covers:
- Insurance premiums for the insurance of the common property for replacement value and public liability
The Sinking fund covers:
- Infrequent expenses of a capital nature, such as consultant fees or fire control
- Major and long-term expenditure for the future, such as replacing the air conditioning or repainting the building
Who sets the body corporate levies?
The body corporate levies are set by the body corporate itself. The body corporate manager does not have any input into the amount of levies charged. Body corporate levies are usually set via the following process:
- Budgets are prepared by, or in consultation with the body corporate committee
- An annual general meeting (AGM) is called
- At the AGM the body corporate votes to accept the budgets for each of the funds
- The body corporate then sets levies for the coming financial year based on those budgets
How are body corporate levies calculated?
The individual levy for each owner of a scheme is calculated by determining the total amount needed to maintain and manage the property for a year, then splitting that amount between all the owners.
Why do body corporate levies vary between buildings so much?
Body corporate fees are calculated based upon the cost of running the building, and without them the common property could not be maintained and managed to a good standard. Each building’s levies are highly individual, and it’s hard to compare one building to another. The average body corporate fee in south-east Queensland is between $96.00 – $115.00 per week; however, many are a lot higher or lower.
Body corporate levies can vary depending on any of these factors:
- The size of the building – smaller buildings don’t require as much maintenance, cleaning and work, so are usually cheaper to run. As well, due to economies of scale, the levies in larger buildings can also be quite reasonable. The most expensive levies can usually be found in mid-sized buildings.
- The location of the building – different locations come with different problems that will need to be paid for. For example, sea-side buildings are likely to experience salt water and storm damage; inner city buildings may experience noise and pollution issues.
- The age of the building – older buildings generally need more maintenance than newer ones.
- The design and construction of the building – building design and construction factor into levy cost in many ways. For example, buildings constructed from block are cheaper to maintain than rendered or wood buildings; buildings with lifts are more expensive than ones with stairs.
- The condition of the building – how well your building has been maintained in the past will have an impact on levies, as your building may have defects that need repairing.
- The facilities included in the building – facilities such as pools, gyms, lifts, barbeques, maintained gardens, games rooms, media rooms, libraries and building managers drive up the cost of body corporate fees.
- The services provided – the amount of work carried out by paid professionals (such as body corporate managers or building managers, accountants, gardeners etc.) versus committee volunteers will influence how high the body corporate fees are.
- The size of your individual lot – lots which are larger than others or have access to additional facilities that other lots don’t have may be required to pay higher body corporate levies.
How are body corporate levies paid?
Each owner pays their body corporate levies to the body corporate account – although these may be collected by the body corporate manager on their invoicing system on behalf of the body corporate. They are usually paid at quarterly intervals, although this is determined by each body corporate scheme. These combined funds will then be spent in accordance with the approved budget to meet the expenses of the body corporate.
Why do body corporate levies increase over time?
Body corporate levies increase as the cost of goods and services increases over time. For example, an increase in the cost of the gardener’s fees or the insurance policy will result in an increase in the cost of the levies. This is necessary so that the body corporate can meet its expenditure.
What happens if owners don’t pay their levies?
When levies are not paid on time, or not paid at all, administrative and sinking fund levels can quickly drop below what is necessary to pay the costs of maintaining the property. If the situation becomes drastic, a special levy may then become necessary to cover expenses.
Special levies are not ideal, as they require large sums of money at short notice – and owners dread them. In short, if levies are not paid the body corporate cannot afford to pay its bills. Paying levies in a timely manner helps to ensure the building’s services and facilities are kept to a high standard, and thus maintains the value of each owner’s investment.
Without proper upkeep, the building would quickly start to look unattractive, pose health risks and lose appeal to potential buyers. Imagine overgrown gardens, cockroach-infested units, dangerous walkways, peeling paint and leaking rooves, and you get an idea of what body corporate fees are preventing.
Because the body corporate has no other way of raising money to cover building costs, the penalties for not paying levies are high. The body corporate may charge interest on overdue levies, may commence debt recovery proceedings against non-compliant owners, or may start court proceedings to recoup the unpaid levies.
Owners will be required to pay the overdue levies, as well as penalties for non-payment and any recovery costs reasonably incurred by the body corporate in recovering the debt.
Body corporate levies are in everyone’s interests
Both financially and in terms of the building, it’s in each lot owner’s best interests to pay their levies on time. Body corporate levies are a great investment in the quality and longevity of your property and provide owners with a great range of benefits. These include:
- Owners don’t have to perform any maintenance or upkeep on the building
- Costs can be covered in an emergency
- Insurance is cheaper in a group
- You may gain access to facilities such as pools or onsite gyms
- You’ll likely be paying lower council rates
- Strata security is likely to be stronger