To paraphrase life’s two certainties being death and taxes, there are also two certainties in Strata: neighbours and levies.

Levies, for what?

Levies are a complex beast as they represent the synthesis of all the costs associated with the management and upkeep of your scheme’s common property. The main variables affecting levies payable for a specific lot are:

-      The nature of the common property. The extent of shared amenities can vary from scheme to scheme: from merely being the shell of the building/s and a driveway to include lifts, foyers, car parks, swimming pools, gardens, pumps, fans and various machinery, tennis courts etc.

-      The weighting assigned to your property in relation to others. When the scheme was initially registered, each lot was allotted a Unit Entitlement. This weighting was set by a valuer and based on the sales price at date of registration. Factors such as size and storey/view of the lot are usually the main drivers.

-      The lifecycle of your building. Levies are distributed between the Administration fund, which cover the day-to-day running of the building, and the Capital Works fund (formerly known as the sinking fund), which is essentially a kitty for big ticket items such as repainting, new roofing, lift replacement etc. Depending on the quality and accuracy of your 10-year Capital Works Plan and its consideration in the yearly budgeting process, levy contributions for capital works should be relatively stable, increasing only slightly each year as the building/s age. However, there may be cases where special levies must be introduced sporadically to cater for unexpected, urgent, out of schedule major works.

-      The cost of outsourced management. Do you self-manage or have an appointed Strata Manager? For larger schemes, is there a part-time or full-time Building Manager, a 24hr concierge?

Management costs

This brings me to look more closely as the specific cost of a strata management service relative to other costs of the scheme and also other equivalent professional services.

First, under the new Strata Schemes Management Act 2015, the Statement of Key Financial Information requires the reporting of two categories of expenses within the Administrative Fund, namely: ‘Maintenance costs’ and ‘Other Admin. costs’.  Without being given specific direction by the legislation or its Regulation, we would logically classify outlays for Electricity, Water consumption, Repairs, Pest Control, Lift servicing, Pool Cleaning etc as ‘Maintenance’ and the fixed administrative-type costs of Insurance premiums, Strata Management, Bank Fees as ‘Other’ costs. Next time you receive this financial report from your strata manager, it is worthwhile calculating the ratio of Strata Management fee as a proportion of the ‘Other Admin. Costs’. Another analytical tool is to calculate the ratio of Maintenance vs. Other costs.

Second, let’s consider the value of the outsourced strata management service relative to other professionals. Because many owners do not realise what is truly involved in the role of strata management and do not see the tasks being performed behind the scenes, it can be easily mistaken that the strata manager has expensive charges. In reality, the proportion of total levies attributable to them is very reasonable.

It is interesting to compare strata management to other professionals contracted to manage assets on your behalf. Take the example of, say, a fund manager looking after your superannuation. Regardless of performance, they will charge you a yearly fee of between 0.5% and 2.0% of invested assets. Assuming the average balance of $150,000 for a middle-aged individual, it can cost you up to $3,000 a year to look after this asset. Applying the same percentages to a $500,000 unit, you’d be up for a fee of $10,000 per lot per year!

The remuneration of your Strata Manager is stipulated in their management contract. Each firm has a different set of services included in their standard fee, and additional services are added as extra. Comparing agreements can sometimes feel like comparing mobile phone plans, it can be very challenging to reach the “apples with apples” stage! There are usually two types of agreements: an “all inclusive” package and a minimum service + extras. Which one is preferable will depend on your specific situation, but the cost of extras can climb quite quickly so read the schedules of fees in the agreement carefully to properly assess whether or not your scheme is likely to need those extra/additional services.

Conclusion

A base strata management fee of a few hundreds of dollars per lot per year,  in relation to the value of your asset and the numbers discussed above, is not very much at all.

Focusing on this cost is totally irrelevant if not put into perspective with the quality of services rendered: value for money. By helping you apply good financial strategies and selecting reliable and quality providers and contractors, a good Strata Manager will be able to save you a lot more money in the long term. Don’t be penny wise and pound foolish!

Of course, a higher price alone is by no way an absolute guarantee of a better service, but a cheaper alternative will invariably need to be compensated for with higher volumes, i.e. more schemes/lots managed per headcount. That could involve strata manager burnt out, which will be reflected in their responsiveness and quality of reports and the manner in which they conduct meetings. Managers who seem to always be in a rush, push for a quick meeting, skim over issues are usually under excessive levels of stress. Is that the style you deserve? They may have also realised that their fee is too low and will therefore only provide the level of service commensurate with that fee. You get what you pay for…

When selecting your Strata Management company, ensure that your main focus is not on price, but preferably on the personality and experience of your assigned manager and their ability to provide you with a number of recent, personal references. It is also important to note that the strength and efficiency of the systems and processes he or she can leverage from to perform daily duties as these will certainly influence performance and ultimately, your collective satisfaction of those services.

Many thanks to Michele Hemmings from Exclusively Strata for her invaluable insights and assistance with proof reading!

You can read more about Michele  here.