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When the levy breaks

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Prospective purchasers of strata-titled apartments or townhouses should carefully examine the costs of levies connected with maintaining the property, according to Archers the Strata Professionals.

If the levies for the property seem too good to be true, then they probably are,” said Archers the Strata Professionals partner Grant Mifsud.

Mr Mifsud said unit owners in strata schemes are required to pay levies to cover financial commitments including building maintenance, insurance, common area facility running costs such as lifts, swimming pools or gymnasiums and sinking fund costs. Levies are generally payable quarterly and a notice is issued by the body corporate treasurer or the strata manager on their behalf.

“Buyers, particularly if it is a new property, should consider if the levy cost disclosed to maintain facilities and put aside for long term sinking fund costs are realistic,” he said.

“It’s worth comparing disclosed levies to a property that has similar services, build type and age then scale to the one you are looking to purchase to get a realistic comparison about the levies connected to the property.”

Mr Mifsud said sinking fund costs can be a particular area that can often be underestimated to keep levies low in the short term.

“This fund is essential for future capital cost planning and pays for long-term capital upkeep such as repainting, lift refurbishments, carpet replacement or road resurfacing. While these costs can vary over time, the sinking fund is expected to have enough money put aside to cover them. If not, a special levy must be raised to cover the cost in addition to regular levies.

”Mr Mifsud said a quantity surveyor can be engaged to provide an expert report forecasting these long terms costs including allowances for inflation which the body corporate can then stand by as reasonable sinking fund levies.

“For new buildings, body corporate legislation does not require the sinking fund report to be provided until the first annual general meeting which can be up to six months from registration,” he said.“This means that there may not be a full report prepared by a quantity surveyor when the original levies are disclosed and can lead to levy increases once the report is prepared in order to reasonable budget for future capital expenses.”

Mr Mifsud said “the budget” is the lifeblood for bodies corporate and under-budgeting the administrative or sinking fund levies for a strata scheme can have severe financial repercussions for current and future owners, particularly if there are known major costs for the building without future planning for adequate funding.

“A solid program of maintenance planning, good recordkeeping, reporting and realistic sinking fund forecasting are all important tools for maintaining adequate levies,” he said.

Source: The Real Estate Conversation October 15th 2018 ttps://www.therealestateconversation.com.au/blog/grant-mifsud/when-the-levy-breaks/archers-the-strata-professionals/strata-title-townhouse-0

This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.

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