Introduction

Major building repairs are becoming increasingly common across Australian strata schemes.

Ageing buildings, waterproofing failures, combustible cladding, concrete spalling, lift replacements, fire compliance upgrades, and escalating construction costs are placing enormous financial pressure on owners corporations throughout NSW.

When significant works arise, many committees face the same difficult question:

Should the owners corporation raise a special levy or obtain strata finance?

The answer is rarely straightforward.

Both funding methods are widely used in Australia, and both carry benefits, risks, and long-term implications for owners. The right approach often depends on the scheme’s financial position, urgency of works, owner demographics, cash flow capacity, and long-term capital planning strategy.

This guide explains how special levies and strata loans work in NSW, how they compare, and how owners corporations typically evaluate funding decisions for major repairs and remedial works.

Key Takeaways

Special Levy vs Strata Finance — Quick Summary

Plain-English Summary

A special levy asks owners to contribute money immediately.

Strata finance allows the owners corporation to borrow money and repay it gradually through levies over several years.

Neither option is inherently “better”. The appropriate funding structure depends on the building, the owners, and the nature of the works.

What Is a Special Levy in NSW Strata?

A special levy is an additional contribution raised by an owners corporation to fund expenses that cannot be adequately covered by existing funds.

Under NSW strata legislation, owners corporations can raise special levies for:

• Major remedial works

• Waterproofing repairs

• Cladding rectification

• Legal disputes

• Insurance shortfalls

• Emergency building defects

• Lift replacement

• Structural rectification

• Fire safety upgrades

Special levies are usually allocated according to unit entitlements.

Why Special Levies Occur

Special levies often arise because:

• Capital works funds are underfunded

• Forecasting was inadequate

• Construction costs increased unexpectedly

• Defects emerged suddenly

• Emergency works were required

• Previous committees deferred maintenance

In many NSW apartment buildings, major repairs can cost hundreds of thousands — or even millions — of dollars.

For individual owners, this can translate into very large one-off payments.

What Is Strata Finance?

Strata finance refers to loans obtained by an owners corporation to fund approved works or expenses.

Instead of requiring owners to pay a large lump sum immediately, the scheme borrows money and repays the loan over time through levies.

These loans are commonly used for:

• Waterproofing rectification

• Concrete cancer repairs

• Roof replacement

• Lift upgrades

• Window replacement

• Defect remediation

• Cladding removal

• Fire compliance works

• Large capital works programs

How Strata Loans Work

In a typical arrangement:

1. The owners corporation approves works

2. A lender assesses the scheme

3. The scheme borrows funds

4. Contractors are paid

5. Owners repay the loan gradually via levies

Loan terms often range from 3 to 15 years depending on the project and lender requirements.

Special Levy vs Strata Finance: The Core Difference

The key difference is timing.

Special Levy

Owners pay immediately.

This minimises interest costs but can create significant financial stress.

Strata Finance

Costs are spread over time.

This improves short-term affordability but introduces interest costs and ongoing repayment obligations.

Plain-English Example

Imagine a building requires $2 million in waterproofing repairs.

Under a Special Levy

An owner with a 2% unit entitlement may need to pay:

• $40,000 upfront

Under Strata Finance

The same owner may instead pay:

• Approximately $300–$500 per month over several years

The total cost may ultimately be higher due to interest, but the immediate financial shock is reduced.

Why More NSW Strata Schemes Are Using Finance

Strata borrowing has become increasingly common in Australia for several reasons.

Rising Construction Costs

Construction inflation has significantly increased remediation expenses.

Many older capital works forecasts no longer reflect actual market pricing.

Larger Defect Claims

Modern apartment defect rectification projects can easily exceed several million dollars.

Owner Affordability Pressures

Many owners cannot easily access large lump sums.

This is particularly relevant in schemes with:

• Retirees

• First-home buyers

• Fixed-income households

• Investor-heavy ownership mixes

Urgent Safety Requirements

Some projects cannot be delayed.

For example:

• Fire safety defects

• Structural instability

• Water ingress

• Cladding compliance

In these situations, waiting years to accumulate funds may create larger risks and higher repair costs.

Advantages of Special Levies

No Interest Costs

The largest advantage is simplicity.

The scheme avoids:

• Loan interest

• Establishment fees

• Ongoing finance charges

Faster Debt Elimination

Once paid, the funding issue is resolved.

There is no long-term repayment obligation.

Potentially Better for Small Projects

Smaller works may not justify financing costs.

Examples include:

• Minor roof repairs

• Small repainting programs

• Localised waterproofing repairs

Simpler Administration

Special levies generally involve less documentation and fewer ongoing obligations than financing arrangements.

Risks and Challenges of Special Levies

Financial Hardship for Owners

Large levies can create serious pressure.

Some owners may:

• Need to refinance mortgages

• Sell assets

• Enter payment plans

• Sell their apartment

Levy Arrears Risk

If many owners cannot pay, the scheme may face:

• Cash flow problems

• Delays to works

• Legal recovery costs

Delayed Repairs

Committees sometimes postpone necessary works because owners oppose large levies.

This can worsen defects over time.

Example

A $500,000 waterproofing issue may become a multi-million-dollar structural remediation project if water ingress continues unchecked for years.

Advantages of Strata Finance

Lower Upfront Financial Pressure

The most obvious benefit is affordability.

Owners avoid sudden lump-sum demands.

Enables Urgent Works

Finance can allow schemes to act immediately rather than waiting years to accumulate reserves.

Can Reduce Long-Term Damage

Early remediation may prevent escalating deterioration.

This is especially relevant for:

• Concrete cancer

• Water ingress

• Structural movement

• Façade deterioration

Spreads Cost Across Current and Future Owners

Large infrastructure-style expenses often benefit the building over decades.

Some committees believe long-term repayment more fairly distributes costs across owners who enjoy those benefits over time.

Risks and Considerations With Strata Loans

Interest Costs

Borrowing increases total project costs.

Owners should understand:

• Interest rates

• Loan terms

• Establishment fees

• Early repayment conditions

• Security arrangements

Long-Term Levy Increases

Loan repayments are usually funded through ongoing levies.

This can affect affordability for years.

Potential Effect on Apartment Sales

Buyers may review:

• Existing loan balances

• Levy obligations

• Capital works issues

Large debt obligations can influence purchaser perceptions.

Governance and Approval Complexity

Financing decisions can become contentious.

Committees should ensure:

• Transparent communication

• Independent advice where appropriate

• Clear owner education

• Detailed project budgeting

Can NSW Owners Corporations Legally Borrow Money?

Yes.

NSW owners corporations can generally obtain finance under the Strata Schemes Management Act 2015.

However:

• Appropriate resolutions are required

• Loan terms should be carefully reviewed

• Owners should understand repayment obligations

• Borrowing powers may interact with scheme by-laws and governance procedures

Schemes commonly seek legal and financial guidance before entering major borrowing arrangements.

What Do Lenders Typically Assess?

Strata lenders commonly assess:

Levy Collection History

High arrears may increase risk.

Financial Statements

Lenders review scheme financial health.

Capital Works Planning

Well-maintained schemes with structured planning are often viewed more favourably.

Nature of the Works

Essential rectification projects may be treated differently from discretionary upgrades.

Insurance and Defect Issues

Active litigation or severe building defects may influence lending terms.

Practical Example: Special Levy vs Loan

Scenario

A 50-lot Sydney apartment building requires:

• $4 million façade remediation

• Fire compliance upgrades

• Waterproofing rectification

The capital works fund holds only $600,000.

Remaining funding requirement:

• $3.4 million

Option 1: Special Levy

Each owner contributes immediately based on unit entitlement.

Potential Outcomes

• Some owners struggle financially

• Payment plans may be required

• Delays occur while funds are collected

• Investor owners may sell

Option 2: Strata Finance

The owners corporation borrows funds over 10 years.

Potential Outcomes

• Immediate works commence

• Levies rise gradually

• Total cost increases due to interest

• Owners avoid major lump-sum shock

Key Insight

The “cheapest” option is not always the most practical.

Committees often balance:

• Total cost

• Affordability

• Urgency

• Building risk

• Owner hardship

• Long-term property protection

Common Misconceptions About Strata Finance

“A loan means the building is poorly managed”

Not necessarily.

Even well-managed buildings may finance:

• Major infrastructure upgrades

• Unexpected defects

• Time-sensitive remediation

Large commercial property owners frequently use debt strategically.

“Special levies are always better because there is no interest”

This depends on context.

A financially devastating special levy can create:

• Forced sales

• Arrears

• Delayed works

• Increased damage costs

In some cases, financing may improve overall outcomes despite interest costs.

“Strata loans attach to individual apartments”

Typically, the borrowing arrangement relates to the owners corporation rather than individual mortgage-style loans against apartments.

However, repayment obligations are ultimately funded through owner levies.

The Importance of Capital Works Planning

Many special levies arise because long-term planning was inadequate.

A well-prepared capital works fund plan can help schemes:

• Forecast future expenditure

• Gradually accumulate reserves

• Reduce funding shocks

• Identify underfunding early

• Improve maintenance decision-making

Questions Owners Should Ask

• Is the capital works fund adequately funded?

• Has the plan been updated recently?

• Are projected costs realistic?

• Has inflation been considered?

• Are major defects emerging?

• Are levies artificially low?

How Committees Typically Evaluate Funding Decisions

There is rarely a universal answer.

Committees often compare:

Financial Factors

• Interest costs

• Levy affordability

• Cash reserves

• Arrears exposure

Building Factors

• Urgency of repairs

• Safety risks

• Escalation risk

• Asset protection

Owner Factors

• Demographics

• Investor ratios

• Fixed-income owners

• Market conditions

Governance Factors

• Voting requirements

• Transparency

• Communication quality

• Independent advice

When a Hybrid Approach Is Used

Some schemes combine both strategies.

For example:

• Partial special levy

• Partial finance

• Use of existing capital works funds

This can reduce borrowing size while limiting owner hardship.

Signs a Scheme May Need Funding Review

Owners corporations should investigate funding structures if:

• Major defects are emerging

• Levies have remained unusually low for years

• Capital works funds are inadequate

• Repairs are repeatedly deferred

• Large special levies are becoming frequent

• The scheme faces escalating maintenance costs

Educational tools such as levy health checks and capital works fund reviews can help committees identify issues earlier.

Frequently Asked Questions

Can a strata scheme take out a loan in NSW?

Yes. NSW owners corporations can generally obtain strata finance to fund approved works and major expenses, subject to appropriate resolutions and lender requirements.

What is the difference between a special levy and strata finance?

A special levy requires owners to pay upfront. Strata finance allows the owners corporation to borrow funds and repay them gradually through levies over time.

What happens if a strata scheme cannot afford repairs?

Schemes may raise special levies, obtain finance, defer works, pursue defect claims, or restructure maintenance priorities. Delayed repairs can increase long-term costs and risks.

Can special levies be avoided?

Not always. However, strong capital works planning and proactive maintenance may reduce the likelihood of sudden large levies.

Who pays for waterproofing defects in apartments?

Responsibility depends on the defect location, building structure, legislation, insurance arrangements, and legal findings. In many cases, common property waterproofing issues become owners corporation responsibilities.

Do strata loans affect apartment sales?

Potentially. Buyers may consider levy levels, loan balances, defect history, and ongoing financial obligations when assessing a property.

Are strata loans common in Australia?

Yes. Strata finance has become increasingly common for major remediation projects, particularly in NSW apartment buildings facing defect rectification and infrastructure upgrades.

Is a strata loan secured against apartments?

Typically, strata finance relates to the owners corporation rather than individual apartment mortgages. However, owners ultimately fund repayments through levies.

Conclusion

Major remedial works are becoming one of the defining financial challenges facing Australian strata schemes.

As buildings age and defect rectification costs rise, owners corporations are increasingly weighing the trade-offs between special levies and strata finance.

Special levies may reduce total costs but can place immediate pressure on owners.

Strata finance may improve short-term affordability and allow urgent works to proceed sooner, but introduces long-term repayment obligations and interest costs.

There is no universally correct funding model.

The appropriate approach depends on the scheme’s financial position, building condition, urgency of repairs, owner demographics, and long-term capital planning strategy.

For many committees, the most important step is not choosing between a levy or a loan — it is understanding the building’s financial position early enough to avoid crisis decision-making.

Disclaimer

This article is general educational information only and does not constitute financial, legal, lending, or strata management advice. Strata funding decisions involve legal, financial, taxation, engineering, and governance considerations that vary between schemes. Owners corporations and lot owners should obtain independent professional advice relevant to their circumstances before making financial decisions.