How are Strata Levies Calculated in WA?

For many strata owners, receiving a levy notice can raise a simple question: how was this amount actually calculated?

Strata levies are not simply an amount decided by a strata manager or added to a notice at random. They are based on the anticipated costs of operating and maintaining the strata scheme, with each owner’s contribution generally determined according to the unit entitlement of their lot.

Understanding how the budgeting and approval process works can make levy notices easier to understand and highlight why paying levies on time is so important to the ongoing financial health and maintenance of a strata property.

What are strata levies?

Strata levies, also known as contributions, are payments made by lot owners to the strata company to fund the costs and expenses associated with running and maintaining the scheme.

These costs can include maintaining common property, insurance, gardening, cleaning, utilities, administration, strata management fees and other expenses associated with the operation of the property.

The strata company has a responsibility to manage and maintain common property for the benefit of all owners. This means having sufficient funds available is essential to ensure the scheme can meet its financial obligations and keep the property in good condition.

In simple terms, strata levies provide the financial resources needed to run the property today and plan for its future.

How is the annual strata budget prepared?

The amount owners pay in levies starts with the strata company's annual budget.

When preparing the budget, anticipated expenditure for the coming financial year is considered. This can include regular operating expenses, such as:

• Building and public liability insurance
• Gardening and landscaping
• Cleaning
• Electricity and other utilities for common property
• Routine repairs and maintenance
• Strata management fees
• Administrative and compliance costs
• Other anticipated expenses associated with the scheme

The budget should also take into account the scheme's existing financial position and expected income and expenditure. For schemes that are required to have a 10-year maintenance plan, the budget must also take that plan into account.

The strata manager can assist the Council of Owners by providing financial information, reviewing previous expenditure, obtaining quotes and helping identify anticipated costs. However, the strata company remains responsible for determining the amounts required.

Who approves the budget?

The proposed annual budget is presented to owners at the Annual General Meeting (AGM).

Owners have an opportunity to consider the proposed expenditure and levy contributions before voting on the budget. In WA, the strata company is required to prepare an annual budget for approval at the AGM by ordinary resolution.

This means the levies shown on owners' notices are linked to a budget that has gone through the strata company's governance and approval process.

The Council of Owners plays an important role in overseeing the financial management of the scheme between general meetings, while the strata manager, where one is appointed, provides professional assistance with administration, financial management and compliance.

Administrative Fund vs Reserve Fund

One of the most important distinctions for strata owners to understand is the difference between the Administrative Fund and the Reserve Fund.

Administrative Fund

The Administrative Fund is used for the regular and ongoing costs of operating the strata scheme.

This can include:

• Insurance
• Gardening and cleaning
• Routine maintenance and repairs
• Common property utilities
• Administrative expenses
• Strata management fees
• Other day-to-day costs of managing the scheme

The Strata Titles Act 1985 (WA) requires a strata company to establish an administrative fund sufficient, in its opinion, for the control and management of common property, insurance premiums and other obligations of the strata company.

Reserve Fund

The Reserve Fund is designed to help the strata company prepare for significant future expenditure, such as major repairs, maintenance, renewal or replacement of common property.

Examples could include:

• Major roof repairs
• Repainting
• Lift replacement
• Significant building works
• Structural changes
• Other substantial future capital expenditure

For designated strata companies — generally schemes with 10 or more lots or a building replacement value of $5 million or more — a reserve fund and 10-year maintenance plan are required. The 10-year plan identifies anticipated major works and their estimated costs and must be reviewed at least every five years.

Having money set aside for future works can help reduce the risk of owners facing unexpectedly large financial demands when major projects become necessary.

How are individual strata levies calculated?

Once the total amount required for the financial year has been determined, each owner's contribution is generally calculated according to the unit entitlement of their lot.

Unit entitlement is recorded on the registered Schedule of Unit Entitlements. It represents each lot's proportionate interest within the scheme and is an important factor in determining the contributions payable by owners.

For administrative fund contributions, the Strata Titles Act 1985 (WA) provides that contributions are generally levied in proportion to the unit entitlements of the respective lots, although scheme by-laws may provide for a different basis in certain circumstances. Reserve fund contributions are levied in proportion to unit entitlements.

A simple example

Imagine a strata scheme has a total annual budget of $120,000 and the combined unit entitlements of all lots equal 1,000.

If your lot has a unit entitlement of 100, your proportion is:

100 ÷ 1,000 = 10%

If the entire $120,000 were being raised on that basis, your annual contribution would be:

10% × $120,000 = $12,000 per year

If levies are payable quarterly, this would equate to:

$12,000 ÷ 4 = $3,000 per quarter

This is a simplified example. In an actual scheme, administrative and reserve fund contributions may be calculated separately, and the scheme's by-laws and the requirements of the Strata Titles Act 1985 (WA) must be considered.

It is also important to understand that unit entitlement is not simply based on the size of a lot. Landgate explains that unit entitlement is based on the relative value of lots, with different valuation approaches applying to strata and survey-strata schemes.

Why do strata levies sometimes increase?

An increase in strata levies does not necessarily mean the strata company is spending unnecessarily.

Costs can change from one year to the next due to factors such as insurance premiums, contractor costs, utilities, repairs, maintenance requirements and planned capital works.

A responsible budget should consider both the immediate operating requirements of the scheme and its longer-term maintenance needs. For schemes with a 10-year maintenance plan, anticipated future works should be considered when preparing the annual budget.

Keeping levies artificially low may appear attractive in the short term, but insufficient funding can make it more difficult for a strata company to maintain the property properly or pay for major works when they become necessary.

Why paying your levies on time matters

Every owner contributes to the financial health of the strata scheme.

When owners pay their levies on time, the strata company has the funds it needs to pay invoices, maintain common property, meet insurance and other financial obligations, and build reserves for future works.

Unpaid levies can place additional financial pressure on the strata company and, ultimately, other owners.

Regular and appropriate levy contributions therefore aren't simply another cost of owning a strata property — they are an investment in the ongoing operation, maintenance and protection of the property.

The bottom line

Strata levies are not set at random. They are based on the costs the strata company anticipates it will need to meet, as outlined through the annual budgeting process.

The process can be summarised as:

1. Assess anticipated expenditure
   The strata company considers operating costs, maintenance requirements, insurance, existing funds and future expenditure.
2. Prepare the annual budget
   The proposed budget identifies the income and expenditure required for the coming financial year.
3. Consider the reserve fund and future works
   Where applicable, the 10-year maintenance plan helps identify future major works and the funding required.
4. Present the budget to owners
   The proposed budget and levy contributions are presented at the AGM.
5. Owners approve the budget
   The annual budget is approved by ordinary resolution at the AGM.
6. Levy contributions are calculated
   Owners' contributions are generally determined according to their lot's unit entitlement, subject to the requirements of the Act and applicable by-laws.

Understanding this process can give owners greater confidence when reviewing their levy notices and participating in AGM discussions.

Ultimately, strata levies play an important role in maintaining the condition of common property, meeting the scheme's financial obligations and planning for the future. A well-managed strata scheme needs appropriate funding today to protect the property and its value tomorrow.

Want to understand your strata levies?

If you have questions about your levy contributions, annual budget or the financial management of your strata scheme, our experienced strata team is here to help. Get in touch with us today by emailing strata@summitrealty.com.au to discuss your strata needs or find out how we can help your scheme be better managed.

For further information, owners can refer to the Strata Titles Act 1985 (WA) and Landgate's information on strata in WA.

This article provides general information about strata levies in Western Australia and should not be taken as legal or financial advice. Specific levy arrangements can vary between strata schemes and should be considered in conjunction with the Strata Titles Act 1985 (WA), regulations and applicable scheme by-laws.