How To Calculate Body Corporate Levies

How are body corporate levies calculatedMention the word body corporate and most people immediately think of levies.

I’m convinced it’s the one thing that everyone knows about body corporate’s that’s actually correct. Every body corporate does issue levies.

What amount those levies are is vastly different from building to building.

I’ve seen levies per lot as low as $55 per year and as high as $25,000.

Body corporate levies are a very individual thing. And that’s because different buildings have different facilities, different levels of repair, even differences in the make up of the residents, which will all effect how much the levies for a building are.

The Budget

Every body corporate has a budget.

People have budgets or guidelines for their spending but in the world of body corporate’s it’s not a budget, its “The Budget”. 

It’s important. In a lot of ways it’s the bible.

Once the budget is set every financial decision made by the body corporate in the next financial year will be considered in terms of whether or not that expenditure is factored into the budget.

The key reason for that is that the budget is the body corporate levies for the year.

The process

Every year the Committee sit down to consider the body corporate’s needs. They consider everything (or at least they should; committees are made up of people, some who’re good with money, and some who aren’t) from costs to run the building like electricity and cleaning, through bank fees, management costs and any ongoing issues.

That amount is totalled up and that becomes the Administrative Fund Budget.

Most buildings will have some form of Sinking Fund Forecast that projects the future capital cost of the building. The Sinking Fund Forecast is considered along with any capital unscheduled outlay the committee wants to address.

That amount is totalled up and becomes the Sinking Fund Budget.

The budgets are divided by the aggregate lot entitlement and that becomes the levy issue.

The budgets and levy issues will be put to the owners for vote at the AGM. Once approved the levies are set for the next financial year.

How to calculate body corporate levies

Say we have this body corporate with lot entitlements like this.

simple body corporateexample schedule a lot entitlements

The committee have forecast  administrative fund budgeted costs for the year of $10,000 and the sinking fund budgeted costs for the year of $5,000. The body corporate wants to collect those costs evenly over the year.

The levy issue as put to owners at the AGM will look like this:

example levy issue

The total administrative fund budget of $10,000 is divided by the total contribution lot entitlements, 10, which gives an amount of $1,000 per lot entitlement to be collected.

The same calculation is done with the sinking fund budget – $5,000 / 10 – giving an amount of $500 per contribution lot entitlement to be collected.

My example body corporate here is collecting levies quarterly and there is not discount.

To calculate the levies payable the amount for each levy issue is multiplied by the lot entitlement of each lot. Lots 1 and 3 have lot entitlements of 1, so they pay the amounts as set out in the levy issue. Lot 2 pays double, and lots 4 and 5 three times.

sample individual lot levy calculations

The figures above show levies payable for lot 1 and lot 5 for each of the four periods throughout the year.

The figures below show how much each lot will pay in total for the year.

example of what lot pays what levy

 Conclusion

Above is a very simplistic example of how levies are calculated; I’ve not taken into account discounts, previous fund balances, deficits or surpluses.

In reality calculation of the budget is a complex and time consuming process, particularly when some body corporate budgets can run into many millions of dollars.

It’s no wonder then that most body corporate managers employ Accountants and bookkeepers to manage finances.

THE BASICS OF BODY CORPORATES

A little knowledge can go a long way


I see so many stressful and frustrating issues in body corporate records that result from simple misunderstandings it hurts my head. If I could do one thing to help it would be to teach everyone the basic rules, so they can avoid all these dramas.


With that in mind I've put together a short eBook that sets out the basics everyone owning in a body corporate really should know. It won't make those big issues go away, but it will give you a firm grounding from which to communicate.


It's completely free, so please, download it now!

Download Now

Comments

  1. shirley hintz says:

    I am an owner of a lot in a commercial bldg of 6 units.1 family owns 4lots individually so any motion can be pasased with their vote. A motion was passed a special levy to be pd by 16.5.14 and then 7 levies quarterly tills march 2016.Each ofthe levies is $8852 per lot.This if for repairs to the building. My point is can a motion classed as ordinary be passed for special levies so far in the future? The body corporate admin.and sinkingfund levies are yet to be set.

    • Hi Shirley

      It is certainly possible for a body corporate to pass levies into the future, even several years into the future. They may also be issued separately from regular levies.

      There may be some issue as to whether or not the resolution should have been a special resolution. There are specific spending limits for both committees and body corporates as a whole. It’s possible that an issue of such a large levy should have been a special resolution. Having said that, Commercial modules do have a lot less rules that other regulation modules. It’s considered business people don’t need as much protection as regular investors.

      The best person to definitively answer if the resolution should have been a special resolution would be the Commissioner Body Corporates. They are the experts in deciding meeting resolutions and they should be able to give you some idea how similar issues have been dealt with, if at all, for free, prior to lodging an application. There’s a link to Commissioner BC on the sidebar.

      I hope that’s helpful.

      LISA

  2. Scott Chambers says:

    I live in a block of 6 levels. The floor plan is the same for each unit above and/or below. Levies are not calculated equally (per square meter) but on the higher you live the more you pay, (for the better view). Is this allowed as the amount is substantial ?

    • Hi Scott

      Levies are never calculated by square meter.The levies should always be calculated on the contribution lot entitlements of the scheme. Check the Community Management Statement (CMS). Lot entitlements are set by developers and recorded in the CMS.

      Nowdays new schemes are required to have equal entitlements except where it would be unequal if they didn’t. The calculation is based on exposure to common property; so for instance a two bed with two car spaces and a three bed with one car space might have similar entitlement.

      Older buildings often had unequal contribution lot entitlements set by something like “the higher you are the more you pay”. That led to contribution lot entitlement changes being pursued through Adjudication and courts. Courts have found there must be a reason for the inequality or a change is ordered.

    • Hi I live in block of 24units they are mostly 2bedroom and a few with3 bedrooms all have garage should fees be the same for everyone and also I had a raise of $130 from last year and there is also a difference of $115 which I am to pay why would this be and who decidides how much fees should be every year thank you

      • Hi Paula

        The budget is decided each year by the committee. The budget is then divided between the owners by contribution lot entitlements.

        Both budgets and contribution lot entitlements are different for each scheme. I can’t comment on what might be driving an increase in your scheme as I don’t have any specifics on budgets or entitlements. Most increases are because it costs more: CPI increases affect bodies corporate as much as individuals.

  3. Lesley Kerr says:

    Hi Lisa
    There is quite a large surplus in the administration fund but the “treasurer” does not take this into account when preparing the budget. It is totally ignored therefore making the levies for the administration fund very expensive. What can I do about this? I have looked at case law and it appears that the admin fund is not to be used for savings (see 25 Queens Road). What can I do to convince the committee that they should be reducing the budget by the surplus amount?
    cheers.

    • Hi Lesley

      Yes the Admin fund is not to be used for savings. As practically as possible it should be cleared out each year.

      In your position I would take the budget as presented, calculate how much I believe the administrative fund levy should be after deducting the saved funds and either: 1) write to the committee outlining your objections including the reference to orders (though not sure which one you meant) and request they recalculate, or alternatively, 2) put forward a motion for general meeting that the levies be recalculated to take up the savings.

      If you do one or even both you can then make an application for adjudication that the levies be amended to what you believe they should be.

  4. Ronwyne King says:

    I have just had a AGM, with much prompting we were told that there is a surplus of $13000.00 in Admin Fund, however they are seeking to increase the Admin fund again. Strata company was suppose to establish a saving account in 2104 when they increased the levies 400%, this never happened. What advise can you offer.

    • Hi Ronwyne

      You need to refer to the budget for the year – it should be included in your Notice of AGM. Its possible the surplus is forecast to be used up during the year.

      If not and they simply plan to increase the surplus here in QLD I would recommend making an Adjudication application (must be within 3 months) that the levies are too high and the motion should be voided. If its upheld then the scheme will need to hold a new general meeting to set new levies.

      I’m not sure what you mean by savings account. Again, check the financials and see what the scheme has been spending money on.

  5. Hi Lisa

    I am an agent attempting to sell a unit in a body corporate, which has BC levies much higher than would be expected with such a property. It is a mixed use property with 6 identical residential units all with 48 entitlements (total 288) and 5 commercial units with various entitlements (total 712). An examination of the sale contract reveals that each of the residential units are paying approximately 3 times what they should be if the budget was evenly distributed along entitlements. The fact is it would appear that the commercial owners are paying nothing. Can this be legal???

    • Hi Terry

      If the total aggregate of contribution lot entitlements across the whole scheme is 712 then each residential lot should be paying 48/712 of the total administrative and sinking budgets.

      Its possible the commercial lots are in a different body corporate and the budget relates to the residential only. If the commercial units are all included in the body corporate then no, it is not in compliance with legislation. Levies should be calculated based on the contribution lot entitlements of the scheme. There aren’t any circumstance where a lot would be exempt from paying.

      If you genuinely believe there has been a mistake I would suggest the owner discuss firstly with the body corporate manager or Treasurer and if no satisfactory explanation is given then the Office Commissioner Body Corporate.

  6. Hi I just bought a unit (1 of 3 ) it does not have a body corporate only body insurance, I have been told that the maintenance costs are split 40/30/30 I am the smallest out of the 3 ( half the size from the unit above me ) but was told that it goes according to bedrooms , One apartment has 3 bedrooms and the others have 2, does this make any sense ?

    • Hi Chris

      Your units do have a body corporate or they would not be able to be sold individually. A body corporate is created when the land is subdivided creating the separate titles. The body corporate is run by the owners. Your other owners are doing this as well, hence the telling you of the ratio for costs, just informally.

      There’s a couple of things that will affect maintenance costs: The contribution lot entitlements of the scheme and the plan the scheme is registered under.

      Contribution lot entitlements define each lots percentage payable of the costs. It is not defined by how many bedrooms a lot has rather is predetermined and contained within the Community Management Statement for the scheme. It can be changed, but only by resolution without dissent – ie full agreement of all owners – and then to take affect the change must be registered. Get a copy of the CMS to work out what ratio of costs each lot pays.

      The type of plan will help work out the boundaries between common property and the lots. Each owner is responsible for their own lot, the combined owners jointly responsible for common property in the ratio set out by the contribution lot entitlements.

  7. Hello Lisa, how can one get hold of a copy of the Community Management Statement you mention?
    Thanks

    • Hi Luke

      You could ask your body corporate manager for a copy. You may also purchase online if you have the CTS number. I charge $77 and there are other options online as well.

  8. I have the second largest lot entitlement of my residential building, 3 bd, tandom garage compared to others with 2 bd 1 car. i can understand why the Sinking fund should be apportioned by lot entitlement for future capital works. I don’t understand why administrative fund is calculated by lot entitlement for the maintenance of the common area, operational bills etc. Eg Other 2 bd which may have 5 occupants, use the common area alot more then the 2 of us in my apartment yet i pay almost double. Doesnt seem fair.

    • Hi Brett

      As it turns out the team who’re reviewing QLD legislation agree with you. The recommendation is that contribution lot entitlements are abolished altogether and only contribution lot entitlements remain. These are all still idea that’s are being mooted obviously however why commission a huge report if then the legislation ignores the recommendations.

  9. alan davis says:

    Our Body corporate has been operating for 25 years.The levies have been sinking fund , admin fund and 3 a caretakers levy
    The caretakers levy has never been charged on the caretakers unit .At the last AGM the Body Corporate Manager lumped the caretakers levy with the admin fund .This doubled the levies for that lot.
    Your advice please if this is correct

    • Hi Alan

      That is very odd. The Caretaker is a lot owner and should always be contributing to the costs of the scheme, including the Caretaker. As a lot owner benefit is derived from the actions of the Caretaker both in terms of current facilities and future property gains. That the Caretaker and lot owner are the same person is irrelevant. They are two separate entities.

      There is no need for a Caretakers levy. The cost should be included in the admin fund levy and paid by all the lots.

  10. Craig neil says:

    We have purchased a brand new unit in a block of 3. The developer has set up a body corporate with a company and they say it is locked in for 3 years. All owners told developer we wanted to do our own body corporate. The firm is charging the 3 of us $2666.00 per year but we want out of what developer set up. What can we do ?

    • Craig neil says:

      Sorry $26660.00 for each unit $8000 pa

    • Hi Craig

      If the contract was entered into by the developer when they were original owners then its most likely a valid appointment, depending on what state you’re in.

      $8,000 is a whopping amount though, especially for 3 units, so that doesn’t sound right at all. Are you sure $8,000 isn’t your total budget? That would be more correct. Ignoring the management cost you’ll be surprised how much it costs to run a scheme, particularly as you’re accumulating capital funds as well.

      This is contract law. BC law can help with the appointment itself, but, if it is valid, then refer to the contract to see what remedies you have for termination. Also discuss with the strata manager. They may be bitchy about it and insist on either being paid out or running its term but they may surprise you.

Trackbacks

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  2. […] it’s nature an administrative fund is calculated to cover the costs of one year only and any unexpected expenditure can easily create a […]

  3. […] year after the end of financial year a budget is created and the levies for the next financial year are […]

  4. […] year after the end of financial year a budget is created and the levies for the next financial year are proposed. The lot owners as a whole vote on whether […]

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