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When buying a lot in a body corporate, it is natural to be drawn to low levies – after all, who doesn’t want to save money? Over time, however, low levies often come at a price. What may initially seem like a financial advantage when comparing the contributions of one building against another, could be masking deferred maintenance, an inadequate sinking fund or an underinsured scheme.
This article discusses why low levies are not always better and why it’s important to understand their purpose, and advocate for fair and responsible contributions instead.
Understanding levies in a body corporate
Levies are the fees collected from lot owners to cover the costs of maintaining and managing the building and its common property. These funds contribute to essential services such as:
- Regular cleaning and landscaping
- Building insurance
- Repairs and maintenance
- Contractual arrangements
- Utility costs
- Administrative costs
- Contributions to the sinking fund for future major repairs or improvements
Well-balanced levy contribution ensures the building remains in good condition and funds are available for routine maintenance, capital works and unexpected expenses. Learn more about levies in our complete guide.
The risks of low levies
If levies are consistently low, the body corporate may not be collecting enough money to adequately maintain the property which can lead to significant issues over time.
Deferred maintenance
Low levies may result in the deferral of necessary upkeep of the body corporate, leading to the deterioration of the common property. Over time, this neglect can lead to larger, more expensive repairs that could have been prevented with regular maintenance.
Inadequate sinking fund
A well-funded sinking fund is crucial for major repairs or future upgrades. If a body corporate’s levies are too low, insufficient funds may lead to special levies or significant annual increases in levies when major works become unavoidable. Learn more about why you need a sinking fund.
Underinsurance risks
In some cases, low levies may mean the body corporate is not adequately insuring the buildings or elements of the common property – like a pool or gym. If a major insurance claim arises and the policy is insufficient, lot owners may be left to cover unexpected costs out of pocket.
Advocate for fair levies
The debate of low levies is often instigated by comparison – why does my neighbour pay less?
While this can be a seductive trap, it overlooks the bigger picture. Instead of chasing low levies, owners should focus on the overall health of the building and the body corporate. While low levies might seem like an immediate financial advantage, they can lead to deferred maintenance and unexpected financial burdens down the line. It’s crucial to advocate for fair and responsible levies that ensure the long-term financial sustainability of the property.
Owners can play an active role in advocating for fair levies by:
- Joining the committee and contributing to discussions around setting budgets and levies.
- Attending body corporate meetings in the discussion of budgets and maintenance plans.
- Reviewing financial statements to ensure adequate funding for both routine expenses and future repairs.
- Supporting appropriate levy increases to prevent large, unexpected special levies.
- Promoting proactive maintenance strategies to protect property values and avoid costly deferred repairs.
By taking a proactive approach, owners can ensure that their building remains well-maintained, financially secure, and a desirable place to live.
In summary
Don’t fall into the comparison trap – low levies aren’t always a positive indicator of the health of a building. One with higher contributions may be better managed and more financially stable in the long run, indicating proactive maintenance, a well-funded sinking fund, and a commitment to preserving the property’s value.
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