Special Levies and Strata Finance: Funding Construction Works in Owners Corporations

For many Owners Corporations (OCs), the real challenge doesn’t end when a defect or maintenance issue is identified. The bigger question quickly becomes: how do we pay for it?

Whether it’s cladding rectification, structural repairs, or major capital works, OCs often face bills far exceeding annual budgets. Understanding the legal framework for levies and the options for strata finance is critical to meeting statutory obligations while keeping lot owners engaged and informed.

The Legal Basis for Special Levies

Under section 24 of the Owners Corporations Act 2006 (Vic) (the Act), an OC may raise fees to cover extraordinary or unexpected expenses.

The type of resolution required depends on the size of the proposed levy compared to annual fees:

• Ordinary Resolution: if the levy is less than or equal to twice the amount of annual fees.
• Special Resolution: if the levy is more than twice the amount of annual fees (requiring support from at least 75% of lot entitlements or lot owners).

Special levies are typically based on lot liability, but they can also be struck using the benefit principle, where only some lots derive the benefit of the works.

Importantly, if works are urgently required to ensure safety or prevent significant damage, no special resolution is required, regardless of the amount.

Failure to follow the correct procedure can render a levy unenforceable, leaving the OC unable to recover costs from lot owners.

Strata Finance: A Growing Option

When special levies are impractical or create financial hardship for owners, many OCs now turn to strata finance arrangements. These loans provide upfront funding for works, with repayments spread across future levies.

Benefits

• Immediate access to funds so works can commence without delay.
• Costs are shared equitably among current and future lot owners.
• Flexibility where large lump-sum payments are unrealistic.

Risks

• Loan repayments increase levy obligations for years to come.
• Some arrangements require special resolutions and additional disclosures.
• Owners may push back on borrowing if transparency and communication are lacking.

Ultimately, while strata finance can unlock essential funding and spread the burden more fairly, it also requires careful planning and clear communication to balance the benefits against the long-term costs.

Reform on the Horizon

The Victorian Government has recently announced an Expert Panel Review of Owners Corporation laws, with a report due by December 2025. Among the issues under consideration are:

• Hardship arrangements for lot owners struggling to pay fees;
• Voting requirements for major OC decisions; and
• Governance and management conduct, including unfair contracts and conflicts of interest.

These reforms could have direct implications for how OCs raise and enforce special levies or enter into strata finance arrangements. If hardship provisions are expanded, for example, OCs may need to balance the financial strain on individual lot owners with the statutory duty to maintain and repair common property.

“One in four Victorians live in a property managed by an owners corporation - this review will ensure their needs and quality of life continue to be protected.” - Minister for Consumer Affairs, Nick Staikos

Construction Works that Trigger Funding Pressure

Common scenarios requiring urgent or large-scale funding include:

• Cladding rectification outside the scope of government programs;
• Waterproofing and façade works where expert reports recommend immediate intervention; and
• Shared services upgrades such as lifts, plumbing risers or fire systems.

In each case, the OC’s statutory duty to repair and maintain common property under section 46 of the Act applies, regardless of whether funding is in place.

Engaging Owners and Avoiding Disputes

Clear communication is the key to successful funding. Lot owners should be informed about:

• The nature and urgency of the works;
• The funding options being considered; and
• The financial implications (levy amounts, borrowing terms and timelines).

Miscommunication is one of the fastest ways to create internal disputes and erode trust. Proactive engagement, supported by clear legal and financial advice, ensures owners understand not only the costs, but also the risks of delay.

Conclusion

For OCs, managing defects or capital works is only half the battle. Securing funding - whether through special levies or strata finance - is what allows construction projects to actually proceed. With the Government review of OC laws underway, the landscape for levies and hardship arrangements may soon change.

By acting transparently, following statutory procedures and keeping owners informed, OCs can meet their legal obligations while safeguarding the value and safety of their buildings.