One of the most common misconceptions about body corporates is that they are overcharging for levies or somehow making money off the lot owners. I’m never really sure what nefarious purpose people think is going on, but it’s not at all what’s happening.
Body corporates are heavily regulated in almost every aspect and levies more so than most.
In fact body corporate’s are specifically forbidden from engaging in any sort of money making activity. They are not allowed to trade, they cannot offer any service or sell any products.
A body corporate exists for one reason only, and that is to manage the common property on behalf of all the lot owners.
More importantly, there is no where else for a body corporate to obtain funds other than through levies*.
Types of body corporate levies
There are five different types of levies.
ADMINISTRATIVE fund levies are for the day to day running of the body corporate. Some examples of Administrative costs are:
- Body Corporate Manager fees
- Onsite Manager fees
- Electricity – for lights in stairwells, pools, electric gates, lifts etc
- Lift / gate maintenance
- Gardening common property costs
- Cleaning of common property costs
- Pool cleaning costs
- Insurance
SINKING fund levies are for future capital works.
The purpose of the sinking fund is to obtain a contribution for long term maintenance and upgrading of the body corporate from all owners who have ever been a member of the body corporate.
Some examples of Sinking costs are:
- Exterior / Interior painting
- Replacement of gates and intercom
- Lift refurbishment
- Replacement of carpet on stairs and / or foyers
- Waterproofing
- Road refurbishment
INSURANCE levies are included in the Administrative fund levy unless the contribution and interest lot entitlements are different.
Since the interest entitlements are used to calculate the benefit each lot will receive if the building suffers a catastrophic loss, they are also used to calculate how much each lot should contribute to the insurance premium.
SPECIAL levies are levies for un-budgeted costs and are either administrative fund special levies or sinking fund special levies.
Administrative fund special levies usually arise when there is a deficit in the administrative fund because some cost(s) has arisen that were not forecast in the financial year and needed to be paid. An administrative fund, but purpose, is meant to be exhausted each year, so even a small unforseen expenditure can result in a deficit.
Sinking fund special levies usually arise in response to major works that are required ahead of schedule, or are more expensive and comprehensive than was budgeted for. The most common example of un-budgeted works is waterproofing. Not many body corporate’s forecast for parts of the building to start leaking.
EXCLUSIVE USE levies, sometimes called Monetary Liability, are levies that apply to only some lot owners.
If there is a part of the body corporate that is allocated as exclusive use and only available to some lot owners then only those lot owners who have access to that area are responsible for maintaining that area.
The most common example is Marina Berths. Only those lot owners who have a marina berth will pay a marina berth levy.
*A body corporate is a legal entity and may enter into credit contracts to borrow money. The repayments of the money are then funded through, you guessed it, body corporate levies.