Yahoo News ‘Completely blindsided’: new owners of strata properties shocked by special levies
About three months after Jake* and his partner bought their apartment in Sydney, they faced an unexpected bill of more than $100,000. It was a special levy for major repairs needed to fix problems with the building’s waterproofing, but it was not flagged in the strata report or the previous year’s annual meeting minutes that had informed their decision to buy the apartment.
“We did our due diligence, everything we were advised to do,” says Jake, who has taken on another job to pay off the levy at $10,000 a month.
Jake is in the upper end of what industry experts say is an increasing number of strata property owners – which can include apartments, townhouses and villas – facing extra payments on top of regular levies to pay for maintenance.
The experts say in some cases owners who cannot afford the special levies are forced to sell their property – sometimes to buyers unaware of an impending levy.
Amanda Farmer, a strata lawyer in Sydney, says 90% of the disputes she deals with now are to do with failures to repair and maintain buildings.
“What I am seeing more of are buildings that need to raise large sums of money at short notice,” she says. “I’m seeing owners be completely blindsided by a very large bill that they have to contribute to, and they just had no expectation, no warning that this bill was coming.”
Owners in a strata property pay a regular quarterly levy to cover maintenance costs in the common areas of the building. They can vote to raise a special levy to pay for repairs – typically urgent or major work – when that budget is insufficient.
Farmer says in NSW the sudden need for special levies is partly due to the cost of maintenance work increasing after legislation was passed last year to tighten building and construction standards.
“This [legislation] is a good thing … but it’s making work a lot more expensive and the owners are left footing the bill.”
Research by the Australian Apartment Advocacy group has found 50-60% of new apartments nationally have defects, which it says is contributing to the need for special levies across the country.
The group’s chief executive, Samantha Reece, says there are “more and more buildings now realising they have defects and are having to address them proactively”.
Farmer says some body corporates have not adequately budgeted or saved for the major repairs outlined in maintenance plans that strata-titled property owners are required to keep.
“They just put their heads in the sand and hope that the problem will go away,” she says.
Leanne Habib, the co-founder of Premium Strata, agrees that some body corporates have not been saving enough.
“People have been underbudgeting for years,” she says. “The only way to fund an urgent repair or project now is by way of special levy.”
Habib says she is also seeing an increasing number of body corporates striking special levies to fund legal action against builders they allege are responsible for defects that led to the need for urgent repairs.
Kim Lovegrove, a construction lawyer and adjunct professor at Western Sydney University, says his firm has seen an increase in body corporate litigation over the past three to four years, particularly in Victoria and related to water ingress, and in many cases special levies have been struck to cover legal costs.
“Unless they do, it’s very hard to get a fighting fund,” he says.
‘It was bankruptcy or hustle’
Lucy* paid $300,000 for an apartment in a strata property in Melbourne last year, her first home.
The day before she signed the contract, she says, the vendor was informed of an upcoming $61,000 special levy – which was officially struck 10 days later – to fund repairs and to sue the builder for alleged defects that made the repairs necessary.
But Lucy did not receive the bill for three months – 13 days after she settled on the property. She had five days until the payment was due.
Her contract to buy the property had outlined in the AGM minutes plans to take legal action against the builder, as well as a building order from 2020 to fix the defects and a quote issued in 2022 outlining how much the repairs would cost.
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But she believes she was misled, given there was no mention of the special levy in the contract, and there was a document saying the works were due to be completed in 2021.
She began legal action against the previous owner, the real estate agent and the conveyancer for not alerting her to the potential for a levy, but withdrew because the cost was too great. In response to a letter of demand, lawyers for the previous owner claimed the documents provided meant Lucy should have been aware “of all the information that gave rise to the special levy”.
“I thought I had done all the right things,” she says. “But at no point did anyone warn me [a special levy] was coming.”
Lucy was unable to draw down on her loan to cover the cost, so she requested a payment plan to afford the special levy, but the owners corporation refused. It was later granted by VCAT after she was taken to court to force repayment.
She is now working a second job to afford the monthly payments of $2,800 for the special levy, $800 for the regular levy and $900 in mortgage repayments.
“If they hadn’t agreed to a payment plan, they could have bankrupted me … which is crazy because that’s the only debt I have,” she says. “I couldn’t have ever imagined me as a 32-year-old bankrupted because I bought my first apartment and I hadn’t even lived there for a year.”
Jake, who had planned to take two days a week of paternity leave after he had his first child last July, says he faced the same choice. “It was bankruptcy or hustle,” he says.
He also believes the previous owner of his home knew about the special levy but did not inform him. He says he has seen reports detailing the damage that would require repairs that were not including in documentation provided when he was considering buying the apartment.
Australian Apartment Advocacy’s Reece says she has increasingly seen apartment owners avoid responsibility for paying a special levy when they know one will be required “by passing the buck on to the next buyer”.
Both she and Farmer say legal requirements for strata-titled properties to conduct maintenance plans should be extended to also mandate budgeting to meet that plan.
“There’s no legal requirement to stick to it and to raise money in accordance with the plan,” Farmer says. “I think that needs to change.”
* Names have been changed
