How can your strata levies be spent?
One of the main expenses in owning a home unit is strata levies. These include both regular quarterly levies and special levies if an unforeseen expense arises. What are the limits to what expenses the owners corporation can pay, then pass on to the owners?
What sort of levies can be charged?
The owners corporation can raise strata levies as follows.
- The “administrative fund” is the money required to maintain the common property and meet other recurrent expenses (for example, insurance, water charges and electricity charges).
- The “capital works fund” (often called the sinking fund) is to meet capital expenses, such as repainting the common property or replacing fixtures and fittings of the common property. It will also cover lifts or ventilation systems for the common property.
- The owners corporation can also require payment of special levies, for example, to meet a large unforeseen expense, such as urgent building repairs.
What are the limits to the Owners Corporation’s spending?
Section 73(4)(d) of the Strata Schemes Management Act 2015 permits the owners corporation to pay money from the administrative fund in connection with its functions under the by-laws. This appears to mean that the owners corporation can simply arrange a by-law permitting payments to be made from the administrative fund for any purpose whatsoever, such as payment to a political party or paying for litigation. Of course, the by-law would need to be passed by a special resolution, which requires more than 75% of votes by unit entitlement. So, it is unlikely that such a by-law would ever be passed.
But in any case, the owners corporation is only permitted to manage the strata scheme for the benefit of the owners of lots in the scheme not just those who dominate the owners corporation. Accordingly, the owners corporation is not permitted to make payments that are not for the benefit of the owners as a whole.
Recent cases
- This principle was tested in the case of Lawson & Clarke v Owners Corporation SP 61788 (Strata & Community Schemes) [2011] NSWCTTT 270, where the owners corporation had passed a resolution authorising a large sum of money to be paid to the Chairman for legal expenses incurred in litigation relating to the strata scheme.
- The Tribunal did not believe that this payment was for the benefit of the lot owners. Accordingly, it was found that the payment was “ultra vires the powers of the owners corporation”and invalidated the resolution that would otherwise have authorised the payment. In other words, the owners corporation did not have the power to make the payment.
- This would apply to any by-law passed authorising payments to be made for a purpose that is not for the benefit of the lot owners.
- We had a recent case where an owners corporation had been leasing a car park from a neighbour for about 15 years, and of course, the rent was paid by each of the owners through strata levies. It was costing each owner about $3,000 in strata levies per annum though only some of the owners used it.
- Two of the owners, who each had their own car space, consulted us as to whether what the owners corporation was doing was legal. After making some enquiries, we found out that the lease was not registered with the Land Registry. However, section 26 of the Strata Schemes Development Act 2015 requires the owners corporation to register all such leases with the Land Registry.
- This meant that the lease was not valid.Ultimately, the individual lot owners who did not have their own car space were required to enter into their own lease, and we suggested that they form a private company to facilitate that. This saved our clients a lot of money.
What this means for you?
Often owners corporations are controlled by a clique, who think they can spend the money however they wish. However, if an owners corporation is raising levies that go towards payments that you believe do not align with your interests as a lot owner, we suggest that you do not let it slide. You should speak to a specialist strata lawyer. After all, if you are not part of the solution, you are part of the problem.
For more information contact Tim Somerville (02) 9923 2321