What Investors Need To Know About Special Levies In Australia

Most investors look closely at the impact strata levies have on their investment prior to putting an offer in on a new property. However, there is another type of fee, known as a special levy, that could cost you far more than your standard strata fees.

Special levies are an additional expense that you need to factor in, but they are not always a negative. These levies can at times be for larger-scale works on buildings that have the potential to add value to your property. Things like rendering the outside of the building, revamping common areas or improving the size of balconies might all require a special levy and have the potential to make a property more appealing and more valuable.

There are some important factors to understand about special levies, regarding how they might impact investors and homeowners, particularly in light of the building defects we have seen recently in Sydney.

What are special levies?

Special levies are charged over and above normal strata levies and are raised when a major unexpected repair requires urgent action or if something needs to be factored into the maintenance of the property for a future date.

Apartment owners pay strata levies which are based on their proportionate unit share in the building. These are split into sinking funds (to cover maintenance issues) and admin funds (to cover strata management, correspondence, etc).

A special levy is generally struck when the cost of the required repair exceeds the funds available or so severely depletes the sinking fund that an increased contribution is required from all owners to cover the additional expense.

How are they approved?

Normally the strata covering the building will convene an EGM (Extraordinary General Meeting ) where costs for the intended repairs will be discussed. Quotes for repairs will be presented and hopefully, an agreement reached on the best option. 

Are special levies common?

Given the spate of defective buildings we have seen in Sydney recently (Opal Tower and Mascot Tower being classic examples), they are becoming more common. Generally, with new buildings there is building insurance for a total of 7 years, but so many developers, upon completion of a development, wind up their company and ‘phoenix ‘start somewhere else under a new name to avoid having to cover issues which eventuate during this and subsequent periods.

A Building Commissioner has been appointed by the NSW Government to police building standards for both old and new buildings and to ensure properties live up to expectation but this role is in its infancy and we are yet to see how far-reaching or effective the Commissioner’s powers will be. Prosecutions may yet come.

Sometimes special levies cannot be avoided. Buildings age and major remedial or just modernising works might be necessary. What is most important is being aware early.

New purchasers in existing buildings

It is imperative that for anyone intending to purchase an existing or older building, that the most recent strata minutes are checked as any intended special levies or issues of consequence which have been identified will be shown here.

Your solicitor will normally request a strata report prior to committing you to sign a contract or pay any deposits, at least during any cooling off period. If you are unaware or have not been advised of outstanding financial issues relating to your apartment you may find yourself committing to large expenditure over and above the purchase price, stamp duty and standard levies you originally anticipated paying.

If the sales agent is aware of an issue, must they disclose it?

Caveat emptor, or buyer beware, is no longer on the statutes. If an agent is aware of any issues which may impact on a potential purchaser going through with a purchase (secondhand house or apartment) they are by law, obliged to advise this to the interested party. This may include a development application for an adjoining property, a violent crime which may have been previously committed in the premises, any structural damage, intended major works with relevant special levies.

It’s vital that you do your due diligence before you buy any property and special levies are an important consideration. Not only could it save you considerable money and headaches down the road, but it will give you a clearer understanding as to what might be in store for your property in the future.