The chances are that if you’ve just bought (or are planning to buy) an investment property in a multi-unit development such as a unit, townhouse or apartment, you’ll have heard about an owner’s corporation, or a Body Corporate.
These are essential to the smooth functioning of any building or housing lot in which owners have joint ownership of common areas or facilities.
What is a Body Corporate?
This is the managing body which administers common property or common areas in multi-unit developments.
Common property or common areas can include things such as the driveway, facilities, foyer and stairwell, gym, pool or any other common area in the building.
By buying an apartment, townhouse or duplex the owner is automatically part of the Body Corporate for that complex.
A treasurer, secretary and chairperson are then elected, and these spots can be filled by any owner.
What does a Body Corporate do?
This managing body is responsible for a lot more than setting out rules of what you can and can’t do on your property.
A Body Corporate can be responsible for things such as maintaining, managing and controlling common property on behalf of the owners.
This includes gardens, pools, gyms, common and shared spaces such as hallways and even elevators.
But a BC is also responsible for calculating body corporate fees and resident payment schedule, making and enforcing body corporate rules (called ‘by-laws’) about what residents can and can’t do and managing and controlling body corporate assets.
Insurance is also on the list of responsibilities with a Body Corporate needing to ensure the building and any common property is properly insured on behalf of owners.
Meanwhile, a Cody corporate is also responsible for keeping records, such as minutes of meetings, a roll of owner details, finance accounts, asset registries and other financial and legal documentation.
Usually, decisions about these items are raised at general meetings, which happen at least once a year (AGM), where all owners are given the opportunity to attend.
Other large meetings may take place, but usually require 14 days’ notice.
What are Body Corporate fees?
Body Corporate fees are those annoying levies which are a necessary evil; as without them, your BC can’t adequately manage and maintain the property to the highest standard.
They are the cost of managing the common property or common areas on behalf of all the owners in the complex.
There are three main types of body corporate fees in Australia however these may vary slightly between the different states and territories.
- Administration Levy – this is a levy to cover the day to day running of the complex (e.g. common water, common insurance, maintenance of lawns, management of the Body Corporate etc).
- General Purpose Sinking Fund Levy – this is a levy that is imposed to cover non-routine expenses (e.g. roof replacement or major repainting). It usually accumulates in a separate fund and is done so that owners are not hit with a large “one-off” expense for major works.
- Special Purpose Levy – this is usually a one-off levy on the owners to pay for major works or a major expense required.
What do Body Corporate fees cover?
If you’re new to these fees, it can be difficult to understand what exactly they cover.
Does Body Corporate cover rates? Do these fees include insurance? What about building works and repairs?
The answer is yes to all of these questions.
Body Corporate fees cover everything from building insurance and maintaining common areas, through to shared utilities, building works and repairs.
While these fees might be another expense a property investor or homeowner needs to budget for, they are necessary to maintain, repair and insure the property.
The annual or quarterly Body Corporate fees and levies and special fees typically go toward the following things:
- Regular maintenance and upkeep of common areas. For example, hiring a gardener to maintain a shared area, or a cleaner to take care of the lobby area and lifts.
- Repairs to common property such as a remote-controlled gate into the parking area of an apartment complex or broken light fittings in a stairway.
- Insurance cover for buildings and common areas, such as for structural damage from a natural event, as well as public liability insurance.
- Shared utilities (only in some cases). For example, if there is only one water meter at the property rather than individual meters for each unit or apartment, this bill may be paid for through the managing body.
Outside of regular maintenance or repairs, a portion of the fees also contributes to a ‘sinking fund’.
A ‘sinking fund’ is essentially a pool of money the Body Corporate can use in case of emergency, such as a large or unforeseen event like major, urgent building repairs that require more money than allocated to the ‘repairs’ pool mentioned earlier.
Examples of these types of repairs could be replacing security gates or fixing structural defects in any part of the common property.
What is covered under building insurance organised by a Body Corporate?
The Body Corporate insurance covers damage and consequential damage to the building itself and all fixtures within the units.
The insurance is for reinstatement of buildings and any legal liability on the common property but does not cover normal wear and tear.
For example, damage to paintwork or carpets within a unit is specifically excluded.
Owners and tenants need to have their own contents and public or collective liability insurance for their own units.
It’s also a good idea for owners renting out their properties to take out landlord insurance to cover carpets and legal liability within their tenanted units and car park lots.
And, what is not covered by Body Corporate fees?
Given that body corporate fees are generally used for the maintenance and management of shared or common areas, they typically don’t cover things such as the following:
- Contents insurance for your personal belongings
- Council rates for your property.
- Maintenance, repairs and improvements to your private-use property. For example, installing air conditioning or fixing a blocked toilet would not be covered.
- Utilities such as water, gas and electricity, unless there is a shared meter and this cost is covered by your body corporate fees. An owner would need to check with their own body corporate or strata management company as this differs between Body Corporates.
Who pays Body Corporate fees in Australia?
This includes ownership of a unit, apartment, townhouse, villa or even a duplex.
They are paid by the property owners, not the tenants.
How much are Body Corporate fees?
This fee could be as low as $30 per week – and as high as $600 per week.
It really depends on the property’s size, age, condition, maintenance schedule and strata committee.
Generally the smaller the apartment, townhouse or villa complex, the less the body corporate rate will be as there will be fewer or smaller common areas to maintain.
Before buying a property under a strata title it is important to ask the real estate agent to give you the previous few years’ body corporate fees for the apartment or unit, to give you a rough idea of what you’ll be expected to pay.
Of course, this figure may change in the future, particularly if major capital works are undertaken.
It may also be a good idea to avoid buying a property in a large complex if you want to avoid having to pay high body corporate costs to maintain the common areas.
For example, owners in complexes with facilities such as a pool, gym or elevators will have to pay significantly more than those without any of those amenities.
Likewise, certain fixtures, fittings and finishes are most costly to maintain than others – timber is a good example, as regular cleaning, oiling and re-staining can quickly add up.
Automated items such as remote garage doors are certainly convenient, but they have a tendency to malfunction often and cost a lot more to repair than the manually operated variety.
Sometimes, smaller buildings have cheaper Body Corporate fees, as they have fewer common areas or facilities to maintain.
However, a small complex with a pool, spa and gym could see you forking out large sums each quarter in Body Corporate fees, as the expense of maintaining this is split between fewer owners than it is in a high-rise block.
While owner-occupiers might like these features we at Metropole suggest investors steer clear of buildings with these type of expenses
We also always allow for a buffer in your investment budget, in the event that your body corporate fees rise.
While you’re looking at the previous years’ body corporate minutes check for any upcoming works, for how much money is in a sinking fund for future repairs (if any) and for any ongoing disputes between the owners or with other tenants.
How often do you pay Body Corporate fees?
In the majority of instances, these fees are charged on a quarterly or annual basis.
How to calculate Body Corporate fees
The total amount required to maintain and manage the building for each year is calculated by the managing body and then divided up between the owners.
In some property complexes governed by a body corporate, each of the properties has the same entitlements and therefore have an equal responsibility to pay these fees.
In other buildings or villa/townhouse complexes, some properties are larger than others or have access to additional facilities which may mean they incur higher fees.
For example, a four-bedroom villa may have a higher fee than a one-bedroom villa.
Likewise, a penthouse apartment would be expected to pay a higher body corporate fee than other smaller apartments in the same building.
At the Annual General Meeting, the Body Corporate will present its proposed budget and owners will have the opportunity to agree or disagree with the calculation.
Once a majority of owners are in agreement on a suitable budget, the quarterly levies payable by each lot can be calculated.
Are there any other costs?
Some Body Corporates may charge a penalty rate for any late payment of fees.
In some cases, if an owner is late paying their fees then they would also lose their right to vote.
Aside from late fees, there are also a number of things which could incur a fee.
Such as if an owner requests copies of registers and records from the Body Corporate then the BC could charge for this.
Or if an owner decides they want to sell and needs a body corporate certificate or information certificate, this would incur a fee in most cases.
Likewise, if the committee wants to hold an additional meeting outside of the AGM, that would come at a cost to owners.
What happens if you don’t pay Body Corporate fees?
Step one: Late payment fees
As I mentioned above, a managing body can charge late payment penalties to encourage owners to pay the contributions by the due date.
Generally, an owner can be charged a penalty at a set interest rate (not more than 2.5%) for each month the contributions are overdue.
Failure to make a payment could see things escalate quickly.
Step two: Debt recovery
If a fee is still not paid by an owner, the Body Corporate can then start a debt to recover action to recover the unpaid fees.
If a debt has been overdue for 2 years or more, the managing body must start debt recovery within 2 months of that date, according to Queensland government law.
This may vary between the states.
It also does not stop the Body Corporate from starting debt recovery earlier.
The BC can lodge a debt dispute claim with their local state Civil and Administrative Review Tribunal, or even directly with the state courts.
However, if debt recovery action has been started in the local state Civil and Administrative Review Tribunal or a court, the dispute cannot be conciliated.
If debt recovery action is started after a conciliation application is lodged, the conciliation application must end.
Are Body Corporate fees tax deductible for property investors?
Many investors who either own or are planning to buy a strata property are unsure as to whether they can claim body corporate fees as a tax deduction.
The answer depends on the type of Body Corporate Fee charged.
According to the ATO, expenses are deductible depending on what the fees are ultimately spent on (either a capital item or a deductible item).
Generally, the ATO has accepted the following general rules.
Administration Fund Levies that are for the general running expenses of the complex are deductible when incurred.
Sinking Fund Levies that are imposed on a regular basis are deductible and the owner does not need to differentiate based on what happens to the funds (i.e. whether spent on deductible expenditure or capital expenditure).
Special Purpose Levies must be traced to see what the actual funds raised were used for. If they were to repaint the entire complex or replace the entire driveway, they would be capital expenses and not deductible.
I’m planning to buy an investment property which is governed by a Body Corporate, what should I bear in mind?
Do your research. Look at the previous years’ body corporate minutes and make sure you check for any upcoming works, for how much money is in a sinking fund for future repairs (if any) and for any ongoing disputes between the owners or with other tenants.
Remember, owning a property in an apartment block or unit complex that is managed by a Body Corporate can be like participating in a democracy – you’ll get your vote, and your opinion will be heard, by you’ll also need to reciprocate and allow others the same courtesy.
By the same token, the expenses for maintaining the building need to be distributed fairly, and when you buy into this situation you need to be aware that you’re making a commitment to pay your Body Corporate fees on time so that important works and maintenance can be undertaken.
If you think you’d prefer to leave the local politics to others and only be concerned with your own affairs, investing in buildings governed by a Body Corporate might not be ideal for you.
The other owners in my complex want to let the Body Corporate lapse – what can I do to protect myself?
They simply agree amongst themselves who is responsible for maintaining and mowing the lawns and which insurance company they’ll jointly appoint to insure the building.
This makes sense from a practical point of view, but once the managing body has been established, the owners and future owners of property within the complex have a legal obligation to maintain the operation of that organisation.
If you’re a property investor or owner and find yourself in this position, it might leave you questioning if letting a Body Corporate lapse and taking on the work between the owners instead is as simple as it first appears.
If you purchase a unit in a strata title scheme where the BC is operational you can protect yourself by making the contract subject to a search of the Body Corporate records and you being satisfied with the results of this search.
But if the BC has been inactive for a few years, this search won’t help you.
However, you can still search for title office records to confirm what by-laws apply to the Body Corporate and what are considered common property or exclusive-use areas.
We at Metropole suggest that a property investor or homeowner in this situation meet with neighbours to clarify whether or not there is anything untoward happening.
This is the only real way to get peace of mind and be satisfied that owning a property which doesn’t have a Body Corporate isn’t going to come back to bite you down the track.
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