Special Levies

Special Levies

If you're in the market to buy an apartment, unit or townhouse in Melbourne, it's important to understand special levies and how they can impact your finances as a property owner. At Pearson Chambers Conveyancing, we want to make sure our clients are well-informed about all aspects of purchasing a strata property, including the potential for special levies. In this post, we'll cover what special levies are, why they are charged, and what you need to know as a prospective buyer.

What is a Special Levy?

A special levy, also known as a special assessment, is an additional one-off fee that can be charged to the owners in a strata scheme, over and above the regular quarterly owners corporation fees. Special levies are raised for a specific purpose, usually to cover major capital works, repairs or upgrades to the common property that cannot be funded from the owners corporation's administrative or capital works funds.

For example, a special levy may be needed to:

  • Replace the roof or guttering
  • Repair major structural defects
  • Upgrade the fire safety systems
  • Install new lifts
  • Repaint the exterior of the building
  • Renovate common facilities like gyms or pools

Special levies can range from a few hundred dollars to tens of thousands of dollars per lot owner, depending on the scope and cost of the works required. The amount is divided between owners based on their unit entitlement.

Why are Special Levies Charged?

Ideally, the owners corporation should plan and budget for future capital works and put aside sufficient funds over time to cover the costs. However, there are several reasons why a special levy may still be needed:

  • The owners corporation has not adequately planned and budgeted for major capital works
  • The capital works fund has been depleted by previous works
  • An unexpected major repair or upgrade is urgently required
  • The cost of works has significantly increased due to inflation, supply issues, etc.
  • Owners have previously voted to keep quarterly fees low

While special levies can be an unpleasant surprise, they are sometimes necessary to maintain and improve the building. Well-considered capital works can enhance the value and liveability of the property for all owners.

Special Levy Process

Special levies must be raised and administered following a specific process:

  1. The owners corporation committee identifies the need for a special levy and obtains quotes for the works
  2. A general meeting is called and a motion is put forward to raise the special levy, including the amount and payment terms
  3. Owners vote on the motion, which must be passed by special resolution (75% of votes in favour)
  4. If the motion is passed, the owners corporation issues notices to each lot owner with the special levy amount and due date(s)
  5. Lot owners must pay the special levy by the due date to avoid penalties and potential legal action

It's important for owners to stay informed and involved in the special levy process. Attending meetings, asking questions and voting on motions can help ensure the special levy is appropriate and fair.

Buying a Property with a Special Levy

When buying a strata property, it's crucial to find out if there are any current or impending special levies that you may become liable for. Here are some steps to take:

  1. Request copies of the owners corporation minutes for the past 2-3 years to check for any mention of planned special levies
  2. Ask the seller or their agent if they are aware of any special levies that have been approved or proposed
  3. Have your conveyancer conduct a special levy search to find any special levies that have been struck but not yet disclosed in the minutes
  4. Get a strata inspection report which includes a review of the owners corporation's finances and forecasts any future special levies based on the capital works fund and maintenance plan

If a special levy has been approved before settlement, the seller is generally liable to pay it in full at settlement. However, if a special levy is approved after you become the owner, you will be responsible for paying it, even if the need for the special levy arose before you purchased the property.

To avoid nasty surprises, make sure your conveyancer includes a special condition in the contract of sale requiring the seller to warrant that there are no current or proposed special levies beyond a certain amount. This will allow you to rescind the contract or be compensated by the seller if an undisclosed special levy arises.

Managing Special Levies as an Owner

If you already own a strata property and are faced with a special levy, here are some options to manage the expense:

  • Use your savings or offset account to pay the special levy
  • Increase your mortgage and spread the cost over time
  • Arrange a payment plan with the owners corporation
  • Sell the property (as a last resort)

You may also be able to claim the special levy as a tax deduction if the property is a rental investment and the works are for necessary repairs or maintenance (not improvements). Speak to your accountant for advice.

While special levies are never welcome, they are a reality of strata living. By understanding how special levies work and taking steps to protect yourself as a buyer and owner, you can be better prepared to deal with them.

At Pearson Chambers Conveyancing, we have extensive experience helping clients navigate the ins and outs of buying strata properties in Melbourne. We can conduct special levy searches, review owners corporation records, and include appropriate conditions in the contract of sale to minimise your risk.

If you're considering purchasing a strata property, get in touch with our friendly team for expert advice and assistance. With our help, you can buy your new home with confidence, knowing that you are well-informed and protected when it comes to special levies and other important matters. Contact Pearson Chambers Conveyancing to find out more details and get a free Section 32 contract review on 03 9969 2405 or email contact@pearsonchambers.com.au.