Purchasers of new strata lots can sometimes find themselves in a
situation where levies increase at an alarming rate above the level
of the estimates and levies determined by a developer during the
Under the Strata Schemes Management Act 2015 if lot
owners are faced with inflating estimates and levies there may be
recourse to seek compensation from the developer.
Action for Lot Owners
Where strata levies inflate beyond the levies and estimates set
by a developer during the initial period, consider seeking advice
in relation to bringing a claim in the NSW Civil and Administrative
Tribunal ("NCAT") within 3 years from the end of the
Action for Developers
A defence is available to developers to a compensation claim
sought through NCAT where strata levies and estimates increase
beyond the levels set during the initial period. If a developer can
show that due care and diligence was used in determining the
estimates and levies during the initial period then NCAT must not
make a compensation order.
Developers should ensure that:
adequate records are kept;
estimates are provided on all relevant information to hand
during the initial period; and
the advice of experts who are versed in strata is sought on the
appropriate levels to set levies and estimates during the initial
What's The Initial Period?
The "Initial Period":
Commences on the day that the owners corporation is
Ends on the day there are owners of lots in the strata scheme
(other than the original owner) who have unit entitlements of at
least one-third of the aggregate unit entitlement.
The Levies And Estimates Keep Getting Higher And Higher
From time to time an owners corporation and lot owners may find
themselves in a situation where levies and estimates which were
determined by a developer during the initial period are inadequate
to meet the actual or expected expenditure of the owners
In those circumstances the owners corporation or lot owner(s)
may apply to NCAT for an order that the developer pay
Such an application must be made within 3 years after the end of
the initial period.
Due Care And Diligence On The Part Of The Developer
The increase in the levies and estimates above the levels
determined by the developer during the initial period may, in some
instances, occur despite a developer taking all appropriate steps
to ensure that the initial levels of the levies and estimates were
In that scenario, if a developer establishes that due care and
diligence were used in determining the estimates and levies set
during the initial period, NCAT must not make a compensation order
against the developer.
The potential for developers to be faced with a compensation
order should they fail to exercise due care and diligence in
setting estimates and levies during the initial period should sound
a clarion call to exercise care when attending to a scheme's
financials during the initial period.
Developers should have regard not only to actual costs but also
to the expected costs of maintaining plant and equipment in a
scheme such as fire safety systems, security systems, lift
equipment and those areas of common property that will require
maintenance. The initial maintenance schedule that is to be
provided prior to the first annual general meeting should assist in
setting appropriate levels of levies and estimates.
The Strata Schemes Management Act 2015 affords
protection for lot owners and owners corporations which find
themselves faced with escalating estimates and levies above and
beyond the levels set by a developer during the initial period, in
circumstances where that developer failed to take due care and
diligence in regard to a setting appropriate levies and estimates
during the initial period.
We can assist in relation to any action related to compensation
orders where the estimates and levies set during the initial period
are too low for the actual and expected expenditure of a strata
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A lessee will need to demonstrate that the genuine interests of the lessor will be protected if relief is granted.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).