@kiwipaul said:
I understand the process of a Strata loan for major expenditure but what I would like to know is can some owners opt out of participating in the loan and instead pay the required contribution for their lot, hence avoiding having to pay interest on the loan.If certain owners have the cash available to cover a special levy can they just pay it and not have to participate in the loan or once a loan is approved by the OC does everyone have to participate.
I would imagine this would apply the same throughout Oz not just in NSW.
I’ve heard of all kinds of weird and wonderful arrangements for opting in and out, but can’t recommend any of them. It comes down to the nature of OC funding and levies.
If an OC needs funds, it can borrow or levy. But levies are applied to everyone in proportion to their unit entitlements, there’s no provision in strata law to levy some owners and not levy others.
Of course, the owners who want to pay upfront could lend the money to the OC, but that’s the beginning of a lot of hassle, complexity and uncertainty. The OC will have to calculate interest and repayments, that’s not easy and people will get very upset if everything isn’t just so.
A better way to think of this issue is to pose the question: “If I’m an owner who wants to pay upfront, why should I agree to the strata corporation borrowing?”
There are several reasons. The first is just being practical. The most important thing is to get the right works done by the right contractor in the right way. The biggest bang for your buck, the best return on investment of money and time, comes from making sure you are doing the right works. If you attempt to force a special levy, the works proposal might fall over because others can’t afford the special levy.
The second relates to your own cost of funds. Money is never free, you have to find the cash for a special levy from somewhere. If you have credit card debt at the end of each month, your cost of money is around 20%. Or perhaps you have to sell shares to pay for the special levy, your cost of money is the lost return on your shares. Or perhaps a special levy means you’ll have to delay that holiday, or not have cash to give to the kids, or not buy that car. Many owners underestimate their own cost of money.
Paul Morton paul@lannock.com.au