Question: A special levy was raised on a $60,000 project estimate, but the recommended quote has come in at $300,000. Is this within strata rules?
An estimate for a project in our strata scheme was $60,000. A special levy was raised and is still being paid. Quotes were then obtained, and the recommended quote is $300,000. We’ve been told this full amount must be paid into an account by the end of the financial year through further special levies.
Is this within strata spending rules?
Answer: A jump from $60,000 to $300,000 isn’t automatically a breach; the real question is whether the works are properly approved and necessary.
A significant increase between an initial estimate and the final project cost can understandably be frustrating for owners, particularly where additional special levies are required. However, the fact that a project cost has increased substantially does not, by itself, mean the owners corporation has acted outside the law.
When budgeting for major works, it is common practice for an owners corporation to allow a contingency of approximately 15 to 20 per cent to accommodate variations, unforeseen conditions, consultant recommendations, inflation, or owners paying levies late. While an increase from $60,000 to $300,000 is far greater than a typical contingency allowance, there is no specific provision in NSW strata legislation that prohibits a project cost from increasing to this extent.
The key questions are whether the works were properly approved, whether they are reasonably required as part of the owners corporation’s repair and maintenance obligations, and whether the special levies were raised in accordance with the legislative requirements and notice periods.
Importantly, under section 106 of the Strata Schemes Management Act 2015 (NSW), an owners corporation has a strict duty to properly maintain and repair common property. If the works are necessary to fulfil that obligation, the owners corporation must raise sufficient funds to carry them out, even where the cost exceeds earlier estimates.
Why this issue matters
Large cost increases can create significant financial pressure for owners and often lead to concerns about transparency, project management, and whether the original estimate was realistic.
In many cases, early figures are only preliminary estimates used to scope a project before detailed investigations, engineering reports, specifications, and competitive quotations are obtained. Once those investigations occur, hidden defects, compliance requirements, access difficulties, or broader repair scopes may emerge, resulting in substantially higher costs.
While owners may understandably focus on the increase itself, the more important questions are whether the decision-making process has been transparent, properly documented, supported by appropriate expert advice, and whether the funds raised are being properly spent.
What your next practical steps should be
- If your scheme is facing a significant increase in project costs, owners should seek a clear explanation before focusing solely on the final figure. It is important to understand what the money is being raised for, what works are proposed, and why the original scope or estimate has changed.
- Request copies of the original estimates, consultant reports, tender documentation, and quotations received. Understanding why the scope has changed often explains the increase in cost.
- Review the meeting minutes and resolutions authorising both the works and any special levies. This will help confirm whether the appropriate approvals have been obtained and whether the owners corporation has followed the required process.
- Ask whether the increase is due to an expanded scope of works, variations to the original scope, newly discovered defects, regulatory compliance requirements, market conditions, or a combination of these factors. It is not uncommon for invasive investigations and exploratory testing to reveal issues that were not apparent during initial visual inspections, ultimately leading to a more detailed and definitive scope of works.
- If owners remain concerned, consider obtaining an independent review from a suitably qualified building consultant, quantity surveyor, project manager or strata lawyer. An independent assessment may help determine whether the proposed works and associated costs are reasonable.
Depending on the circumstances, the nature of the works and their urgency, the owners corporation may also consider alternative funding arrangements. These may include staging the works, spreading special levies over a longer period, arranging a strata loan facility, or adopting another funding strategy that reduces immediate financial pressure while still enabling the owners corporation to meet its repair and maintenance obligations.
A substantial increase in project costs is not necessarily evidence of wrongdoing. The real issue is whether the owners corporation has properly investigated the works, obtained appropriate advice, followed the correct approval process, and communicated transparently with owners throughout the project.
This post appears in Strata News #800.
Leanne Habib Premium Strata E: info@premiumstrata.com.au P: 02 9281 6440
