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Why the size of the scheme matters when it comes to levies

August 5, 2024

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In a body corporate scheme, the concept of levy payments is central to the maintenance and management of the common property, buildings, and shared amenities. These payments are contributions made by lot owners to cover the expenses associated with the upkeep, insurance, and administration of the common areas and ultimately the preservation of your investment.

One critical factor influencing levy payments is the number of lots within the scheme. This article looks at how the size of a scheme influences levy contributions and the implications for lot owners.

Determining levy payments

Levy payments are calculated from the budget set by the body corporate, which outlines the expected expenses for the upcoming financial year. These expenses can include general maintenance and repairs, maintaining assets and equipment such as lifts or garage roller doors, body corporate insurance, management and consultant’s fees, and utilities for common areas.

The total budget is then divided among the lot owners, and levies are determined according to the lot entitlement for each lot.

All lots have two types of lot entitlement:

Contribution schedule lot entitlement – used for administrative and sinking fund levies
Interest schedule lot entitlement – usually used for insurance levies

For a more detailed explanation read our article on how individual levy amounts are calculated.

Impact of the number of lots on levy payments

1. Distribution of costs

Fewer Lots: In a scheme with fewer lots, the costs are distributed among a smaller number of owners. This means each owner bears a larger share of the total expenses, leading to higher individual levy payments.

More Lots: In a scheme with more lots, however, the costs are spread across a larger number of owners. This distribution typically results in lower individual levy payments, as the expenses are shared more broadly. Larger schemes can benefit from economies of scale, potentially reducing the per-lot cost of services and maintenance.

2. Fixed and variable costs

Fixed Costs: Some expenses like tax lodgements, bank fees, pool costs and gate entry maintenance are relatively fixed regardless of the number of lots. In schemes with more lots, these fixed costs are divided among more owners, decreasing the per-lot share.

Variable Costs: Expenses that vary with the size and usage of the common property, like gardening costs, insurance and roof repairs can also be influenced by the number of lots. Larger schemes may have higher overall variable costs, but the impact on individual levy payments may still be lower due to the greater number of contributing owners.

3. Special levies

Special levies are additional contributions required to cover unforeseen expenses, significant capital works or works not identified in the scheme’s sinking fund forecast report. In smaller schemes, special levies can be particularly burdensome for lot owners, as the limited number of contributors results in higher individual payments. In contrast, larger schemes can distribute these costs more widely, mitigating the financial impact on each owner.

The principal here is the same as with standard levies.

See our article on body corporate special levies.

Amenities and facilities

Schemes with more lots often have more extensive amenities and facilities – things like pools, gyms, and landscaped gardens, which require higher maintenance and operational costs. However, the larger number of owners helps to distribute these costs more evenly. In smaller schemes, while the maintenance costs might be lower, the lack of scale means each owner still faces relatively high levy payments.

In summary

The number of lots in a body corporate scheme significantly impacts levy payments. Owners in smaller schemes can in some cases face higher individual payments due to the concentration of costs amongst fewer contributors.

In contrast, larger schemes benefit from a broader distribution of expenses, potentially resulting in lower per-lot levy payments. Understanding this dynamic is crucial for prospective buyers and current owners.

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Why the size of the scheme matters when it comes to levies

A personal approach
to body corporate management

Receive an obligation
free building proposal

Determining levy payments