An OC borrowed $1.2M to buy a unit — with a deficit in the capital works fund, how will it pay for major works?

It’s difficult to provide a specific response without more information, but I would make the following comments.

While the capital works fund might currently show a deficit of $1.2m, I assume this is because of the loan liability of a similar amount. If this is the case, the current levies should still be available for any capital works expenditure in the short term. Strata accounts usually don’t show the value of property assets on their balance sheet, so it’s likely the value of the unit purchased isn’t recorded on the balance sheet, while the loan used for its purchase is shown. I would add that this is a relatively unusual situation, so it’s hard to know how it has been treated in the owners corporation accounts.

The terms for strata loans are usually relatively short term (3-7 years) and the conditions of these loans would normally require the owners corporation to have a mechanism in place for repayment of the loan principal and interest. This is often done by raising special levies over a period of time. These levies are in addition to the normal quarterly levies you currently pay. In this case, however, the loan might be serviced/repaid through the sale of the lot as a commercial property, or via rental of the lot to commercial tenants.

In the event that the owners corporation does need to raise special levies in coming years to repay the loan, your share of these levies would be equal to your unit entitlement in the strata plan. You have indicated there are 309 lots. If your lot is an average size your unit entitlement might be around 0.33%. So, for example, if special levies of $1.2 million are raised in the future, your obligation would be to pay 0.33% of that amount, or $3,960. If your actual unit entitlement is smaller or larger than that percentage, your obligation would rise or fall accordingly.