Should you buy an apartment with a special levy?

You can buy an apartment with a special levy, and sometimes it's a good buy: the building is being fixed, and the price may already reflect the cost. What matters is how much your share is, whether it's already been raised or is still to come, who pays under your contract, and whether the levy fixes the problem or is the first of several. Work those out before you exchange, not after.

First, find out exactly where the levy is up to

A special levy is an extra charge the owners corporation raises on top of normal strata fees, usually for major repairs. In the strata records, it's at one of four stages:

• Raised and being paid. Owners voted for it and instalments are due. The amount is known
• Approved but not yet due. The vote has passed and the first instalment is coming
• Proposed. Quotes have been tabled, or a motion is on the agenda for the next meeting
• Deferred. Owners discussed the work and put it off. This is the one most often missed

Read the minutes of the last two or three years of meetings to see which stage it's at. Our guide to special levies in NSW explains where they hide in a strata report.

Work out your share in dollars

Your share is the total levy multiplied by your lot's unit entitlement, divided by the total unit entitlement of the scheme. If the building raises $300,000 and your lot has 30 of 1,000 units of entitlement, your share is $9,000.

Ask the strata manager for:

• The total amount, and how it's split into instalments
• How much of your lot's share is still to be paid
• When each instalment is due

A strata certificate (section 184 certificate) will show any special levy that has been raised and is unpaid for the lot.

Who pays: you or the seller?

Under the standard NSW contract, the general rule is that the seller pays a special levy the owners corporation decided on or before the contract date, and you pay one decided after it. That makes a proposed or deferred levy the risky kind: if owners approve it after you exchange, it will usually be your bill.

Contracts often change this in their special conditions. Some make the buyer pay every instalment due after settlement, whenever the levy was raised. Have your solicitor or conveyancer check the strata clauses and special conditions before you sign. See our guide to contract special conditions in NSW.

Ask what the money is fixing

A levy that fixes a known problem properly can be good news. A levy that patches a problem that keeps coming back is a warning. Look for:

• An engineer's or building report that sets out the scope of the work
• Quotes that match the amount being raised
• Whether this is the first levy for the problem, or one of several over the years
• Defects that keep reappearing in the minutes: leaks, waterproofing, concrete cancer, balconies
• Building defect claims against the builder, which may recover some of the cost, or may drag on for years

Compare the work with the building and pest report if you have one. An inspector usually only looks at your apartment and what they can see of the common property, so the strata records are where the full picture is.

When a special levy can be a reason to buy

• The price reflects it. Apartments with a known levy can sell for less, and the discount may be bigger than your share
• The seller is paying. If the levy was raised before the contract date and the contract doesn't shift it to you
• The work fixes the building. A properly scoped repair, with the money in place, can leave the building in better condition than its neighbours
• The capital works fund is healthy after the work. That suggests there's no second levy waiting

When to walk away, or negotiate hard

• The levy is proposed or deferred and the contract makes it yours
• There's no engineer's report, or the amount looks low against the scope of the work
• The capital works fund is close to empty and the 10-year plan shows more big work coming
• Owners are in a dispute with the builder or with each other about the repairs
• Levies are going unpaid by other owners, which can delay the work

A coming levy is a real cost. Many buyers use it to negotiate the price or ask the seller to pay, and your solicitor can write that into the contract.

Questions to ask before you exchange

• Is any special levy raised, approved, proposed or deferred for this building?
• What is this lot's share, and how much is still owing?
• What is the work, and is there an engineer's report and quotes?
• Is more major work planned in the next five years that the capital works fund won't cover?
• Is there a defect claim against the builder, or any dispute about the repairs?

Ask the selling agent first, then the strata manager.

Questions

Can I get a loan to cover a special levy?

Some lenders will consider it as part of your home loan or as a separate loan. Ask your mortgage broker or lender before you exchange.

Does the bank care about a special levy?

Lenders and valuers may take a large levy or major defects into account. If a valuer knows about serious problems in the building, it can affect the valuation.

Can the owners corporation borrow instead of raising a levy?

Yes. A strata loan spreads the cost over years through higher regular levies, and the repayments pass to you when you buy. Look for loans in the financial statements and minutes.

Keep reading

• How much does a strata report cost in NSW?
• Is a low capital works fund a red flag?
• Can ChatGPT review a strata report?
• Strata by-laws to check before you buy in NSW

General information only, not legal, financial or building advice. See our Terms of use.