Strata by-laws, and what unpaid levies mean at settlement

Part six, and the last, of our series on strata levies and paperwork in Perth. Two things here that catch buyers, and both are avoidable if you read the pack.

By-laws come in two categories

WA schemes have governance by-laws and conduct by-laws, with default sets in Schedule 1 and Schedule 2 of the Strata Titles Act 1985.

The resolution needed to make, amend or repeal them differs: a resolution without dissent for governance by-laws, and a special resolution for conduct by-laws (section 44(2)). Governance is the higher bar of the two, which surprises people who assume the rules about pets and parking are the hard ones to change.

Do not assume the statutory defaults apply

Plenty of schemes have their own registered by-laws that depart from the defaults, sometimes heavily. An older inner-city building can carry a long registered set covering everything from floor coverings to what may be kept on a balcony.

The only way to know is to get the registered by-laws for that scheme. The statutory schedules are only a starting point. This is why a proper strata information pack includes the scheme’s own by-law document as well as Schedules 1 and 2.

The practical questions worth asking before you buy: can I keep a pet, and on what conditions. Can I rent the property out, and short term. What am I allowed to change inside the lot. What am I responsible for maintaining. Every one of those lives in the by-laws, not in the Act.

Unpaid levies follow the lot

Unpaid contributions bear simple interest at the rate specified in the regulations, currently 11 per cent a year, unless the strata company determines that no interest or a lesser rate applies (section 100(4)(b) and regulation 78). They can be recovered as a debt, and the strata company can agree to compromise that debt.

The provision buyers should know is section 100(6). A new owner is liable, jointly and severally with the person who owed it, for so much of the contribution and interest as was unpaid when they became the owner.

In plain terms, arrears can arrive with the lot. Check the levy position before settlement. Your settlement agent will normally ask the strata company for a statement, and it is worth confirming that has been done.

What to do with all of this

If you are buying, the six parts of this series are really one question: does the price you are paying come with a bill attached? A scheme with a funded reserve, a current 10-year plan, current insurance certificates and by-laws you can live with is worth more to you than one without, even if its levies are higher today.

If you are selling, every one of these documents is going to be read by serious buyers. Better that you know what they say first. Get them together before you go to market and the questions get answered on the spot, which is what keeps a campaign moving.

Ask us for an appraisal and we will go through the scheme paperwork with you.

How levies are actually adjusted at settlement

The contract does the work here, not the Act. Most sales in Western Australia use the 2022 General Conditions, and the strata provisions sit in clause 10.

One footnote on the contract itself. The 2022 General Conditions are now read together with a short annexure REIWA issued in August 2023, after paper duplicate certificates of title were abolished. It does not touch the strata provisions in clause 10, but it is why there is an extra page attached to your contract, and it is worth checking that it is there. We explain it in what a settlement agent actually does in Perth.

Ordinary levies are apportioned like rates

Administrative fund contributions are treated as an outgoing. The seller pays up to and including the possession date, the buyer pays from the day after, and the difference is settled as part of the settlement adjustments.

Note the words possession date, not settlement date. The possession date is the earlier of settlement and the day the buyer is given possession. If a buyer takes early possession, the levy line moves with them.

Reserve fund levies follow a different rule, and it surprises people

Under clause 10.6, a reserve fund contribution is split by financial year rather than by day:

• An instalment payable in a financial year before the year settlement happens in is the seller’s, in full.
• A contribution or instalment payable in the financial year settlement happens in is apportioned between seller and buyer.
• An instalment payable in a financial year after settlement is the buyer’s, in full.
• A reserve fund levy struck after settlement, in the same financial year, is not adjusted at all. The buyer pays the whole thing.

That last one is worth reading twice. A scheme that resolves on a reserve fund levy a fortnight after settlement hands the entire amount to the new owner, and there is no adjustment back to the seller. It is one of the reasons to read the minutes and the 10-year plan before you buy.

What the seller warrants, and what that warranty is worth

Under clause 10.2 the seller warrants that all contributions, interest and other money owed to the strata company have been paid, apart from anything being apportioned at settlement, and clause 10.3 gives the buyer an indemnity for loss caused by a breach of that warranty.

The limit matters. Clause 9.3 says that a breach of a clause 10.2 warranty does not, by itself, give the buyer a right to terminate, delay settlement, or hold back part of the purchase price. The buyer keeps their ordinary legal rights where the breach unreasonably affects their intended use or materially affects value, but the contract does not hand them a walk-away button.

There is also a practical gap. Unpaid council and water rates get a formal undertaking process at settlement, because those authorities are covered by the contract’s rates machinery. A strata company is not one of those authorities, so unpaid levies do not get the same treatment. They are dealt with by asking the strata company for a statement and adjusting for it, which is why the statement needs to be requested and read rather than assumed.

If the by-laws change after you sign

A modification of the scheme by-laws between signing and settlement is a notifiable variation. So is the granting or varying of a lease, licence, right or privilege over the common property. The seller has to tell the buyer in writing, and the buyer may be able to avoid the contract if they are materially prejudiced by it. Part 7 of this series sets out the notice periods.

Not sure what happens between the contract and the keys? Read what a settlement agent actually does in Perth.

The whole series

• Part 1. Which kind of strata scheme is it?
• Part 2. What your strata levies actually pay for
• Part 3. Who insures the building?
• Part 4. What changes with the size of the scheme
• Part 5. How to read a 10-year plan
• Part 6. By-laws, and what unpaid levies mean at settlement (you are here)
• Part 7. What a seller must tell you before you sign

This article is general information about how strata schemes work in Western Australia. It is not legal, financial or tax advice, and it is not a substitute for reading the scheme plan and the registered by-laws for the particular scheme. Rules change and every scheme differs. If something turns on it, check the scheme documents or get advice.