How do strata levies, budgets, and arrears actually work?

Money is where strata governance gets complicated — and sometimes contentious. Owners who are perfectly happy with how the committee runs meetings can become deeply unhappy when levies go up, a special levy is announced, or they receive an arrears notice.

Most of the friction comes from a lack of understanding. When owners genuinely understand how levies are calculated, why the capital works fund exists, and how arrears are handled fairly, the pushback is usually much lower. This is a guide for committees who want to explain the financial side of strata in plain English — to themselves and to their owners.

The two funds: what they're for and why both matter

Almost every Australian strata scheme operates two separate funds:

**The administrative fund** (sometimes called the maintenance fund) covers day-to-day operating costs: insurance premiums, cleaning and gardening, utilities for common areas, routine maintenance and minor repairs, management fees (if applicable), and administrative costs. Think of it as the running costs of the building.

**The capital works fund** (also called the sinking fund, or the maintenance fund in some states) is for major, less-frequent capital expenditure: roof replacement, lift upgrades, facade repairs, major plumbing replacements, balcony waterproofing. This fund needs to accumulate over time so that when major works are needed, the money is available without a large, sudden special levy.

NSW legislation requires a 10-year capital works plan that projects major expenditure over a decade and informs what the capital works fund contributions should be each year. Other states have similar requirements. Getting this planning right is one of the most important financial responsibilities of the committee — an underfunded sinking fund is one of the most common causes of special levies.

How budgets are set

The annual budget is typically prepared by the treasurer (or a strata accountant if the committee engages one) and approved at the AGM. The budget estimates both expenditure for the coming year and the levy contributions required to cover that expenditure.

For the administrative fund, the budget covers anticipated regular expenses. Some committees build in a modest contingency buffer — 10–15% is common — to cover unexpected minor repairs without needing to go back to owners for an emergency levy.

For the capital works fund, the budget should be informed by the capital works plan. If major work is expected in three to five years, contributions should be building toward that cost throughout the preceding period.

Unit entitlements and how levies are calculated

In most Australian states, each lot's levy contribution is proportional to its unit entitlement — a number assigned to each lot in the plan of subdivision or strata plan that reflects the lot's relative value, size, or benefit from common property.

A lot with higher unit entitlements pays more in levies. A penthouse with more entitlements than a studio apartment on the ground floor pays a larger share.

Unit entitlements are set in the plan and generally cannot be changed without a formal application to the relevant tribunal or authority. If your scheme has entitlement disputes, this is an area where legal advice is worth getting.

Some schemes set levies by equal share rather than unit entitlement — check your by-laws and legislation to understand which method applies to your scheme.

Levy frequency and timing

Levies can be charged monthly, quarterly, or annually — whatever the committee and the approved budget determine. Quarterly levies are common for smaller schemes; monthly levies are preferred by some owners who find the smaller, more frequent amounts easier to manage.

Whatever frequency you choose, stick to it and communicate the levy schedule clearly well in advance of each due date. Owners who are surprised by levy notices are owners who get frustrated, even if the amount is the same as always.

Understanding arrears

Arrears arise when an owner doesn't pay their levy by the due date. This is an area where many committees struggle — they either let arrears run indefinitely (bad) or pursue them too aggressively too early (also bad).

A sensible arrears management process:

1. **Automatic reminder** when a levy becomes overdue — ideally automated within a few days

2. **First formal notice** at 14 to 21 days overdue — polite but clear, noting that interest may accrue

3. **Second notice** at 30 to 45 days — firmer, noting the committee's obligation to pursue outstanding levies on behalf of all owners

4. **Committee decision** on escalation — debt recovery letter, tribunal application, or payment plan consideration

Most overdue levies are the result of oversight, genuine financial hardship, or a dispute about an amount. Communication resolves the vast majority. For hardship cases, a payment plan is often the most practical solution — get any arrangement in writing and document it in your records.

Most Australian states permit interest on overdue levies at a specified rate. Check your legislation for the permitted rate and ensure any interest is calculated and applied correctly.

Special levies: when they're necessary and how to manage them

A special levy is a one-off levy raised for a specific purpose that wasn't covered in the existing budget — typically an unexpected major repair or a project where the capital works fund is insufficient.

Special levies require a resolution at a general meeting. The resolution must state the purpose, the total amount, and how it will be apportioned between lots. Give owners as much notice as possible and explain clearly why the special levy is necessary, what the funds will be used for, and what the alternatives were considered.

Special levies are almost always unpopular. Clear communication and a transparent decision-making process — where owners can see the quotes, understand the options, and know why the committee chose this approach — makes them much less contentious.

Communicating finances to owners

The committee has a duty to keep owners informed about the scheme's financial position. Annual financial statements, levy notices with clear due dates, and regular updates when significant expenditure is approved are all part of this.

Use LIZ to help draft financial communications in plain English. Complex budget discussions, special levy explanations, and arrears policy reminders are all tasks where clear, professional communication saves the committee time and reduces owner anxiety.