Nothing generates more questions from owners than a levy increase. For most people, the monthly levy is a fixed cost they'd rather not think about, until it goes up, at which point they want to know exactly why. Understanding how levies are actually set makes those conversations easier, whether you're a trustee explaining a budget or an owner trying to make sense of one.
What a Levy Actually Pays For
Every owner in a sectional title scheme pays a monthly levy in proportion to their unit's participation quota (broadly, its size relative to the whole scheme). That money is split between two separate funds required by the Sectional Titles Schemes Management Act (STSMA): the administrative fund and the reserve fund.
- Administrative fund: day-to-day running costs, insurance, security, cleaning, utilities for common areas, management fees, and routine maintenance
- Reserve fund: savings set aside for future major expenses, like repainting the building, replacing a lift, or resurfacing a parking area
How the Annual Budget Is Set
Ahead of each AGM, trustees (usually with their managing agent's help) prepare a budget for the coming year covering both funds. This isn't guesswork. It's built from actual costs: prior year spending, current supplier contracts, insurance renewal quotes, and known upcoming maintenance needs from the scheme's 10-year maintenance plan. The budget is presented to owners at the AGM and adopted by resolution.
Why Levies Increase
A levy increase usually comes down to one or more of these:
- Rising costs: insurance premiums, electricity, water, and security contracts tend to increase annually, often above general inflation
- Reserve fund contributions: the STSMA requires reserve funds to be adequately funded based on the 10-year maintenance plan, which sometimes means a deliberate increase to catch up on underfunding
- New or increased services: added security measures, a new contractor, or expanded common area maintenance
- Special levies avoided: a well-funded reserve, built through steady levy contributions, is what prevents owners from being hit with a large lump-sum special levy when a major expense comes up unexpectedly
Special Levies vs Regular Levy Increases
A special levy is a one-off charge raised outside the normal budget, usually because an unexpected or underfunded expense has come up (storm damage not fully covered by insurance, for example). Special levies are unpopular precisely because they're a lump sum with little warning. This is the core argument for properly funding the reserve fund through regular levies in the first place: it converts unpredictable, painful special levies into smaller, planned monthly contributions.
What Owners Can Reasonably Ask For
Owners are entitled to see the budget and the reasoning behind it. If a levy increase seems steep, reasonable questions to ask trustees or the managing agent include: what specifically is driving the increase, how does this compare to the reserve fund's target based on the maintenance plan, and were quotes obtained competitively for major line items. A well-run scheme should be able to answer all of these clearly.
Want a second opinion on your scheme's budget or reserve fund position? We're happy to take a look.
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