When an owners corporation in New South Wales faces a severe funding shortfall for major building repairs, they typically have two primary options: raising a special levy or taking out a strata loan.
With building material and labour costs remaining 15% to 20% higher than pre-2020 levels, historically accurate 10-year capital works plans are increasingly falling short. According to the Australasian Strata Insights Report 2024/2025 by UNSW City Futures, over 35% of strata schemes in NSW are currently underfunded for their long-term maintenance requirements.
Deciding how to bridge this funding gap is one of the most stressful decisions a strata committee can make. Owners must weigh the immediate financial impact of lump-sum payments against the long-term cost of commercial interest.
This guide explores the legal requirements, financial risks, and strategic considerations of special levies and strata loans under NSW legislation.
What is a special levy in NSW strata?
A special levy is a supplementary, lump-sum charge billed to all lot owners when the capital works fund lacks sufficient capital to cover an unbudgeted or major expense.
Under Section 81 and 83 of the Strata Schemes Management Act 2015, an owners corporation can determine that additional money is required to meet current or impending expenses. The total amount is divided among the lot owners according to their unit entitlement. For example, if a Sydney apartment complex requires a $500,000 roof replacement, an owner holding 10% of the total unit entitlements will be issued a notice for $50,000 AUD.
Special levies are typically collected in a single payment or spaced out over a few short instalments. Because the scheme collects the capital directly from its owners, no external interest is paid. However, the sudden demand for significant liquidity often places considerable “mortgage stress” on individual owners.
How does a strata loan work for an owners corporation?
A strata loan is an unsecured commercial finance facility taken out collectively by the owners corporation to pay for major works, which owners repay progressively over five to ten years.
Rather than forcing owners to find large sums of cash immediately, the owners corporation borrows the funds from a specialised strata lender. Section 100 of the Strata Schemes Management Act 2015 grants the owners corporation the power to borrow money and secure the repayment of that money.
Because the loan is unsecured, individual owners do not need to provide their apartments as collateral, nor are they subjected to personal credit checks. Instead, lenders assess the financial health, levy collection history, and size of the scheme to determine the creditworthiness of the owners corporation. The repayment of the principal and interest is simply factored into the scheme’s regular quarterly levies.
What are the voting requirements to approve funding?
The voting requirements differ significantly between funding options; a special levy requires an ordinary resolution, whereas a strata loan demands a more difficult-to-achieve special resolution.
To approve a special levy in NSW, the motion must pass by an ordinary resolution at a general meeting. This means more than 50% of the voting value cast must be in favour.
Conversely, borrowing money involves greater long-term financial commitment. The NSW Government guidelines and strata legislation require a special resolution to authorise a strata loan. A special resolution is only passed if no more than 25% of the value of the votes cast are against the motion. This higher threshold means that a vocal minority of owners can successfully block a strata loan if they hold more than a quarter of the voting entitlements.
Multi-State Legislative Comparison
While this article focuses on NSW, strata legislation varies across Australian states regarding how funding is approved.
| State | Governing Legislation | Special Levy Approval | Strata Loan Approval |
|---|---|---|---|
| NSW | Strata Schemes Management Act 2015 | Ordinary Resolution (>50%) | Special Resolution (≤25% against) |
| VIC | Owners Corporations Act 2006 | Ordinary or Special (if >2x annual fee) | Ordinary Resolution |
| QLD | Body Corporate and Community Management Act 1997 | Ordinary Resolution | Ordinary Resolution |
What are the key differences between special levies and strata loans?
The primary difference lies in cash flow: special levies require immediate out-of-pocket capital from owners, while strata loans spread the financial burden over time at the cost of commercial interest.
For strata committees deciding between the two, it is crucial to understand the distinct advantages and risks of each mechanism.
Feature Comparison
| Feature | Special Levy | Strata Loan |
|---|---|---|
| Upfront Cost | High. Paid as a lump sum or in short stages. | Low. Spread over monthly or quarterly levies. |
| Interest Costs | Nil. The scheme pays no commercial interest. | Yes. Interest applies and is paid by all owners. |
| Default Risk | High. Owners may struggle to pay massive sums. | Low. Repayments are manageable and gradual. |
| Property Sale | Debt must generally be cleared before settlement. | Debt stays with the lot; the buyer takes over the levies. |
| Implementation | Cash must be collected before contractors begin work. | Funds can be drawn down immediately to start work. |
Insights on Special Levies
Special levies are highly effective for smaller funding gaps or in affluent buildings where owners possess high liquidity. The primary advantage is absolute cost efficiency—every dollar raised goes directly to the building repair rather than to bank interest. However, if multiple owners fall into arrears on a $40,000 invoice, the scheme may not have the funds to pay the builder, causing the repair project to stall entirely.
Insights on Strata Loans
Strata loans offer immediate capital, meaning urgent structural defects like concrete spalling or combustible cladding can be rectified immediately before they worsen. While the overall cost of the project increases due to interest, the loan preserves individual owners’ cash reserves and prevents scenarios where vulnerable owners are forced into bankruptcy or the rapid sale of their property.
Can owners corporations use a hybrid funding model?
Yes, hybrid funding allows owners to choose whether to pay their portion of the required capital upfront as a lump sum or pay it off over time through a loan levy.
This approach has surged in popularity throughout 2025 and 2026 as it accommodates diverse financial situations within a single building. Here is how a hybrid model practically functions:
- The owners corporation passes a resolution to approve a $1,000,000 major repair project.
- The scheme simultaneously raises a special levy and approves a strata loan facility.
- Owners who have the cash can pay their portion of the special levy immediately.
- The owners corporation then draws down on the strata loan only for the remaining balance owed by owners who could not pay upfront.
- The ongoing loan repayments (principal and interest) are exclusively levied against the lot owners who opted into the loan portion.
This method requires highly competent strata management accounting to ensure interest is applied correctly to the specific lots, but it eliminates the friction between owners who want to avoid interest and owners who desperately need financing.
Frequently Asked Questions
Do strata loans make apartments harder to sell?
A strata loan does not inherently make an apartment harder to sell, provided the loan resolves a known building issue. Prospective buyers review strata reports to understand the scheme’s financial health. A building with a new, certified roof funded by a strata loan is often viewed much more favourably than a building with severe water leaks, a depleted capital works fund, and no plan to fund the repairs. The incoming buyer simply assumes responsibility for the ongoing quarterly levies.
What happens if an owner cannot pay a special levy?
If an owner fails to pay a special levy by the due date, the debt becomes legally actionable by the owners corporation. Under the Strata Schemes Management Act 2015, unpaid levies attract a default interest rate of 10% per annum. The owners corporation can escalate the matter to a debt collection agency or the NSW Civil and Administrative Tribunal (NCAT). In severe, prolonged cases, the owners corporation can seek a court order to force the sale of the lot to recover the debt.
Can a strata committee approve a loan without an AGM?
No, a strata committee cannot independently approve a commercial strata loan or a special levy. Both mechanisms require a vote from the entire owners corporation at a general meeting (either an Annual General Meeting or an Extraordinary General Meeting). Because a strata loan legally mandates a special resolution, all owners must be given proper notice and the opportunity to vote on the financing terms.
Understand Your Building’s Financial Health with StrataClear
Funding major repairs is a complex process that highlights the critical importance of proactive capital works planning and transparent accounting. Whether your building passes a special levy or takes out a commercial strata loan, understanding exactly where your quarterly contributions are going is vital for protecting your property asset.
StrataClear helps Australian strata owners demystify their levy notices and understand their building’s financial position. From analysing sinking fund forecasts to breaking down complex owners corporation budgets, StrataClear ensures you are never caught off-guard by major repair bills. Explore our resources today to gain total clarity on your strata management.
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