Hidden Strata Levies: Understanding Administrative and Capital Works Funds

When buyers look at a strata property, one of the first things they notice is the quarterly levy. If the levies seem low, the building can appear well managed and affordable.

That is not always the case.

In many strata schemes, low levies can be a warning sign rather than a benefit. A building may look fine on the surface, but if the owners corporation has not been properly funding future repairs and replacements, owners can later be hit with a special levy for major works.

Understanding the difference between the administrative fund and the capital works fund is one of the most important parts of reviewing strata records.

The Administrative Fund

The administrative fund covers the day-to-day running costs of the scheme.

This usually includes:

• cleaning and gardening

• common area electricity and water

• strata management fees

• insurance premiums

• routine repairs and maintenance

• minor service contracts

In simple terms, this is the operating account for the building. It is there to keep the scheme functioning from year to year.

If the administrative fund is regularly under pressure, it may suggest that the levies are not keeping up with actual running costs.

The Capital Works Fund

The capital works fund is for longer-term expenditure.

This is the fund used for larger items such as:

• roof replacement

• waterproofing works

• concrete repairs

• repainting of common property

• lift upgrades or replacement

• fire safety upgrades

• major renewal of building components

These costs do not arise every month, but they are predictable over the life of a building. A properly managed strata scheme should be building up reserves over time so that these works can be paid for without financial shock.

Why This Matters to Buyers

A common mistake is to assume that low strata levies mean the building is efficient and well run.

In practice, low levies can sometimes mean:

• the scheme is underfunded

• necessary works have been delayed

• the committee has kept contributions artificially low

• future owners may be asked to cover the shortfall through a special levy

This is where buyers get caught. On paper, the unit may appear affordable. In reality, the true cost of ownership may not yet be showing in the current levies.

Where Special Levies Come From

Special levies usually arise when major work becomes unavoidable and there is not enough money in the capital works fund to pay for it.

Common examples include:

• rectification of water ingress

• balcony or facade repairs

• replacement of failed membranes

• lift replacement

• fire compliance works

• cladding-related rectification

These issues are often not sudden. In many cases, the warning signs have been sitting in the records for years through engineer reports, meeting minutes, quotes, and repeated discussions about defects.

That is why reviewing the records properly matters.

What to Look For in a Strata Records Review

When assessing a scheme, do not just look at the current levy amount. Look at whether the finances and records tell a consistent story.

Some of the key warning signs include:

1. Low capital works balance

If the building is ageing or has expensive common assets, but the capital works fund is relatively low, that is a concern.

2. Repeated defect discussions

If the minutes refer to the same issue year after year — water ingress, cracking, roofing, lifts, drainage — it often means the problem has not been properly resolved.

3. Quotes obtained but no action taken

Where the records show that quotes or reports were obtained for major work, but no funding decision was made, the scheme may be delaying unavoidable expenditure.

4. Levies that have barely changed over time

Increases in insurance, labour, and contractor costs are normal. If levies have stayed flat for too long, it is worth asking whether the scheme is keeping pace with real costs.

5. Tension between the forecast and the cash position

A capital works plan may recommend future expenditure, but the actual fund balance may be well below what is needed. That gap is where special levy risk often sits.

The Importance of Reading More Than the Financial Statement

A financial statement on its own rarely tells the full story.

To understand the condition of a strata scheme, the financials should be read together with:

• AGM and committee meeting minutes

• the capital works fund plan

• defect reports

• correspondence relating to major repairs

• by-laws and any dispute history

This broader review often reveals whether the scheme is proactive, or whether it has been postponing difficult decisions.

Final Thoughts

The difference between the administrative fund and the capital works fund is not just an accounting detail. It goes directly to the financial health of the building and the likelihood of future levies.

For buyers, the key question is not simply, “What are the levies now?”
It is, “Are the current levies enough to support the building properly over time?”

A thorough strata records review can help answer that question before contracts are exchanged. It can also help identify whether a scheme is being responsibly managed or whether major costs are likely to emerge after purchase.

If you are relying only on the current levy notice, you may be seeing only part of the picture.