Interpreting and Understanding Strata Fees
Strata Fees
What you need to know and how to make a proper detailed comparison.
More and more we hear from clients about strata fees being too high, especially in comparison to other similar complexes. Clients have even instructed their agents not to show them anything where the fees are higher than $250 per month. This is a concern as it may demonstrate a lack of knowledge about how strata fees are arrived at, or even how a strata-titled complex operates.
In one example that illustrates well the issues a person stated that they were struggling with how high fees should be, citing that the Council, after a depreciation report, was putting pressure on owners to increase contingency contributions and maintenance provisions. This resulted in an 8% fee increase in the first year and a 12% increase in the next. The writer went on to say that a property right across the street, built at the same time, had strata fees of $100 a month less and that this differential could have a negative affect on sales in the first complex.
Upon further exploration, it was discovered that Complex A constructed in 1986, comprised of 125 units; and Complex B also constructed in 1986, comprised 118 units, making the two complexes relatively comparable in age, size, and basic design. But what are the differences? Here is a detailed comparison:
Complex A has a central boiler providing hot water and heat to each unit as part of the common expenses; while Complex B has electric hot water tanks and electric heat in each unit, both paid for individually by each owner.
Complex A budgets $155,000 per year for maintenance and repairs, working out to $1,240 annually per unit; Complex B budgets $75,000 per year at $635 per unit.
Complex A has implemented its depreciation report and is funding an average of $55 per unit per month for future renewals or replacement. Complex B, however, has not yet done their depreciation report and is funding only $15 per unit per month.
The last two items alone, not including the cost of heat and hot water to the owners in Complex B, are a difference of $90 per month almost entirely making up the difference in fees between the two complexes. Consider a major project if it arose: Complex A is planning for a new roof in three years time to be paid for out of the contingency reserve fund, which has a current balance of $550 000. Complex B has not investigated its (same age) roof, has only $137 000 in its reserve fund, and will therefore likely cause owners to be facing special levies within the next few years. In summary, comparisons of strata fees are valid only if you compare the exact same conditions!
Common expenses need to be analysed, balance in Contingency Reserve Fund needs to be considered, condition of the property is paramount (has there been a depreciation report? Is there much deferred maintenance?), and are there any major expenses on the horizon? After all, is getting a large special levy (cash call) really better than higher monthly strata fees?
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