INTERIM LEVIES EXPLAINED: WHAT YOU NEED TO KNOW

In part 1, we explained how levies are determined and what they are for. In part 2, we explain interim levies—what they are, how they are determined, and why they sometimes cause fluctuations in periodic levies often confusing lot owners. Understanding interim levies and how they are determined is key to maintaining financial stability for your strata schemes budgeting and finance management.

Interim levies are temporary financial contributions that lot owners must pay to cover body corporate expenses before an official budget is approved at the next annual general meeting (AGM). They ensure the body corporate has the necessary funds to continue its operations while awaiting formal levy decisions.

Unlike standard levies, which are set based on an agreed budget, they act as a stopgap measure to maintain financial liquidity. These levies prevent cash flow disruptions which could arise for required services such as maintenance, insurance, and other contracted costs.

When Are Interim Levies Issued?

Interim levies are typically issued at the beginning of the financial year, before the AGM is held. Since the AGM is where the body corporate formally approves the new annual budget and associated levies, the interim levy acts as a temporary financial measure until the final levy schedule is determined.

Once the budget is approved at the AGM, any necessary adjustments are made to reflect the actual financial requirements of the body corporate. This may result in either an increase or decrease in future levy payments for that financial year.

How Are They Determined?

Interim levies are generally calculated based on the previous year’s budget. Since the new financial year begins before the AGM is held, the interim levy amount is set at the prior year AGM to cover expenses during the interim period.

The amount is usually determined by:

• Taking a total of the previous year’s approved budget.
• Dividing the total by the levy periods and setting the next levy period at that rate.
• Adjustment to that rate may be made by anticipating any known cost increases to the next budget year (e.g., insurance premiums, maintenance contracts, or ongoing projects).

Since they are based on past financials and estimates, they may not align perfectly with the final budget, which can result in levy adjustments later in the year.

This is because the remaining levy periods are to fund the balance of the approved budget.

Example

Interim Levy set for levy 1 of 4 (quarterly levies) on basis of prior year budget of $100,000 in an amount of $25,000 ($100,000/4 = $25,000).

Budget set for current year in an amount of $115,000 because the budget is required to be increased for known expenses.

3 remaining levy periods for that budget year to collect the balance of $90,000 ($115,000 budget – $25,000 interim levy = $90,000) are set at a rate of $30,000 each ($90,000/3 = #30,000) to collect the total budgeted amount for the year.

Why Do Interim Levies Cause Periodic Levy Fluctuations?

Because interim levies are based on estimates rather than a formally approved budget, there is often a need for adjustments once the new budget is finalised. These adjustments can result in:

• Higher levies in later periods if the interim levies were set too low to cover actual expenses.
• Lower levies in later periods if the interim levies were set too high and resulted in a surplus.
• Evening out of payments through rebalancing across the remaining levy periods.

These fluctuations can sometimes cause confusion among lot owners who may not anticipate changes in their levy contributions. To minimise confusion, it is important to communicate effectively with owners about how and why these adjustments occur, particularly when there is an increase after the interim levy period.

Final Thoughts: Managing Effectively

These levies are a crucial financial tool that ensures a body corporate can continue operating smoothly while awaiting formal budget approval. However, their temporary nature means owners must be prepared for potential levy fluctuations throughout the year.

Understanding interim levies allows lot owners to better manage their strata financial obligations and helps maintain a well-run, financially stable body corporate.

Article contributed by Adam Ford, Partner at Archers the Strata Professionals