Unexpected special levies bills are either the dread fear or the actual bane of apartment owners’ lives and last week I was asked to go on the ABC Breakfast show with Craig Ruecassel to discuss the issue.

He’d had an email from an owner who said she’d never live in strata again because of the outrageous levies. In her case it was an unexpected bill for $30k in one year, including, one assumes, special levies.

He asked what could be done to avoid massive levies payments especially at a time when the government needs more people want to move into apartments. You can listen to the chat HERE (scoot forward to 2:13.30)

Levies, like death and taxes, are unavoidable;  they are related to the costs of running the building PLUS fixing things that the owners, by law, must fix.

However, unfair or inflated contracts plus special levies for unexpected repairs can distort the picture.

So how do you avoid buying into a block that could see you paying more in levies that you expected or can afford?

For an older buildings, prospective owners should conduct an almost forensic search of the strata minutes (or get a professional to do it). A standard search only skims the surface.

Go deeper and go back a couple of years and that way you can discover if there have been problems that haven’t been addressed. You can also see if there is a healthy capital works fund (aka the sinking fund).

Compare the money in the bank with the mandatory 10-year maintenance plan and you can soon spot if there’s trouble on the way.

If there is no record of there ever having been any problems, then be very suspicious. There are no buildings that have no problems. The owners may be covering something up and want to sell before they have to pay to fix them.

The ideal older building is one that has had issues – either physical or social or both – and they have been resolved.

In a brand new building, beware of levies that have been quoted deliberately low to attract buyers, and contracts that have been inflated to compensate service providers who may have provided services or infrastructure to the developers cheaply or for free.

Also, at the first AGM, persuade the other owners to NOT agree to any contracts that have been offered. Elect your committee and tell the developer and strata manager that the committee will get back to them in two or three months once they have had a chance to scrutinise the contracts and see if they can get a better deal.

This highly disruptive idea has been endorsed by the former Strata Commissioner and senior strata managers. It’s not revolutionary – all you have to do is collectively say “we’ll get back to you.”

The essential services will still be provided and if the strata manager or building manager threaten to walk away, let them – they are clearly not on your side.

By the way, at this point some (but not all) developers may go nuts. If so, it’s becasue they have probably negotiated sweetheart deals for themselves but those deals expire at the first AGM. 

They (or the strata manager)  might even tell you that you MUST agree to the contracts. In fact, you only have to agree if those contracts are to go ahead. But this is the time to stop them rather than get locked into contracts that could be for as long as 15 to 20 years.

At the first AGM for our investment property, we managed to force the renegotiation of an embedded network contract but were persuaded by the strata manager not to reject the budget which was clearly inadequate.

‘It will make it very difficult to sell apartments,” he said. We should have realised he was thinking of the developers and not us, the poor saps who would take the blame – encouraged by the developer – when a more realistic budget had to be presented the next year.

Recent changes to NSW strata laws have brought strata contracts under Australian consumer laws for the first time, but there are no StrataKops. If you are being ripped off by your developer, you have to pay lawyers to challenge them (and their lawyers) in court.

And remember that there is no one at that first AGM who’s going to tell you to be careful. Up to that point, the strata manager has been employed by the developer and may well want to be employed by them again.

However, all said and done, if you do your homework at least as diligently as if you were buying a new car, booking a holiday or purchasing a TV, you can have a happy and not ridiculously expensive time in strata, provided you take advantage of the protections that exist.

These editorials (or a version of them) go out with our newsletter every Friday. The following week we re-post them here for those who missed out. If you want to get them fresh, just subscribe (for free) below.  – JimmyT