A strata building is an asset and like any property it will require upgrades and major repairs over time. Known as capital works, the scope of what’s required will vary over the life a building, but make no mistake, it can add up and covers everything from renovations to building alterations and repairs.
This is where the capital works budget and levy comes into play, allowing the building’s owners to budget for major events that may occur over the life of a strata property.
Capital works differ from the ongoing daily maintenance of a building in that they tend to be larger repair projects and renovations that impact the value and livability of a building.
Therefore, capital works might include repainting and resurfacing the building, installing a new roof, re-tiling the pool area of replacing aged fixtures and fittings in common areas.
Or as NSW Fair Trading explains: “The capital works fund (previously called a ‘sinking fund’) is to ensure there is enough money to pay for capital expenses when the job needs doing”.
The law and the capital works plan
By law, every strata building is required to factor capital works into their budget and planning, and it all starts with the capital works plan.
Basically, by law a 10-year capital works plan must be adopted and commence at the first annual general meeting of any strata building. It must also be reviewed at least every five years.
Owners corporations then use this plan to create a capital works fund, which each unit owner contributes to.
The capital works fund
The capital works fund is a special “account” that each unit owner contributes to via a levy. This ensures there is enough money to complete the works identified in the capital plan.
To work out the capital works levy that each owner contributes, the estimated cost of capital works is divided by the total number of unit entitlements and then multiplied by each lot owner’s unit entitlements.
Fair Trading cites the following rough example as to how that’s worked out:
“As an example, if an owners’ corporation calculates that it needs $200,000 over 10 years, then it would need to levy (raise) $20,000 each year. To meet the $20,000 per year, contributions would need to be levied according to the unit entitlement of each lot. If there were 20 lots in the scheme and each had the same unit entitlement, each owner would be required to contribute $1000 per year to the capital works fund”
Meanwhile, the amount required for the capital works of each building will vary, with newer schemes likely to require less money than older schemes, which may have more repair work on the agenda.
Need some help?
United Strata Solutions is a NSW-based company with over 20 years real estate experience and specialist expertise in strata management.
Our services extend from property appraisals, sales and marketing through to comprehensive strata and centre management throughout New South Wales. We also specialise in the finances of strata buildings, including creating capital works plans and budgets, and levying individual owners.