NSW: Can strata schemes levy owners for repairs and keep the insurance payout?

Question: Can an owners corporation levy owners for repairs and use the insurance payout for other purposes?

Our owners corporation recently received an insurance payment under “litigation cover”. We were told this part of the policy only covers items belonging to an owner that were damaged during repairs to common property. The insurer advised that $60,000 was paid to the owners corporation. The owners corporation then levied all lots to cover the cost of the repairs.

Can the owners corporation use the $60,000 insurance payment for other purposes, or must it be applied to the purpose for which the insurance claim was made?

Answer: How the funds are treated will depend on the characterisation of the damaged items.

In New South Wales, the way insurance proceeds are dealt with depends on the nature of the claim.

Section 163 of the Strata Schemes Management Act 2015 requires that where an owners corporation receives insurance money for the destruction of or damage to a building, those funds must be applied to rebuilding, repairing or restoring the building (unless there is a unanimous resolution otherwise). Under strata legislation, “building” may extend beyond common property to include parts of a lot, such as fixtures and fittings.

In this case, the $60,000 was not received for building damage. It was paid under “litigation cover” for lot owners’ property that was damaged during common property repairs. Whether section 163 applies depends on the nature of the damaged items:

• If the items fall within the definition of “building” (for example, fixtures and fittings), section 163 may apply and the funds may need to be used to rectify that damage unless a unanimous resolution is passed otherwise.
• If the items were not considered “building” (for example, contents such as carpets, furniture or personal effects), section 163 would not apply. In that case, the $60,000 forms part of the owners corporation’s general funds and can be taken into account in the next budget to reduce contributions or offset expenses.

Ultimately, how the funds are treated will depend on the characterisation of the damaged items, and it is a matter for the owners to decide through the budget and levy process once that is clarified.

This post appears in the May 2026 edition of The NSW Strata Magazine.

Tyrone Shandiman
Strata Insurance Solutions
E: tshandiman@iaa.net.au
P: 1300 554 165

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisenent Australia AFSL No 240549, ABN 15 003 886 687.