Strata Levies
Are Strata Levies Recoverable Under WA Retail Leases?
If you lease or own retail premises in Western Australia within a strata complex (for example, a small shop in a strata shopping centre or mixed-use building), the question of who pays the strata levies can be surprisingly complex.
Landlords naturally want to pass on as much as possible as “outgoings”. Tenants are rightly concerned not to pay more than the law allows. The problem is that strata law and WA retail leasing law use different concepts – and they don’t line up neatly.
This article explains, in practical terms:
When strata levies can be recovered from a retail tenant;
The difference between the Administration Fund and Reserve (Sinking) Fund; and
Which parts of those levies must remain a landlord’s cost under WA’s Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the CT Act).
1. The basic position in WA
In broad terms:
Yes – strata levies can be recoverable under a WA retail lease,
But only to the extent they relate to operating, repairing or maintaining the building and common property, and
Any “management” or “capital works” component in those levies must be borne by the landlord, even if the lease says otherwise.
So the analysis is not “Is it a strata levy?” but:
What is this part of the levy actually paying for?
If it is genuinely part of the day-to-day running, repair or maintenance of the property, it can generally be passed on (if properly disclosed and itemised). If it is management/admin overhead or capital works, it cannot be recovered from a retail tenant, even if it sits inside a strata levy.
2. How WA retail leasing law treats outgoings
The CT Act regulates most retail shop leases in Western Australia. Among other things, it:
Controls what outgoings (operating expenses) a landlord can recover from a retail tenant; and
Renders certain types of charges void and unenforceable, even if the tenant has “agreed” to them in the lease.
Operating expenses – the starting point
In simple terms, the Act allows a landlord to recover certain “operating expenses” – the costs of:
Operating the building and common areas;
Repairing and maintaining the building and common areas; and
Providing services and facilities to the centre or building.
The lease must:
Clearly spell out what items of operating expenses the tenant will contribute to; and
Explain how those amounts are calculated and apportioned (for example, by lettable area).
The landlord must also provide:
Annual estimates of operating expenses; and
Annual statements, usually audited, showing what was actually spent.
If the landlord does not meet these requirements, it can jeopardise their ability to recover outgoings at all for that period.
Strata levies as operating expenses
The Act treats the appropriate part of any strata levy as an operating expense, to the extent it relates to operating, repairing and maintaining the building and common property.
However, the Act then draws a bright line around two categories:
Management / administration fees – a retail tenant cannot be required to pay a landlord’s “management fees”. This prohibition also applies where management/administration costs are bundled into a strata levy.
Capital costs – a retail tenant cannot be required to contribute (whether directly or via a sinking fund) to the amortisation of:
Construction of the building or centre;
Extensions or structural upgrades; or
Landlord’s plant and equipment.
Those items are landlord costs and must stay that way.
3. How strata schemes work – Administration Fund vs Reserve Fund
Under WA strata law, a strata company will typically maintain at least two funds:
(a) Administration Fund
This covers the day-to-day running costs of the scheme, such as:
Cleaning, gardening and routine maintenance of common property;
Common property electricity and other utilities;
Building insurance and sometimes public liability insurance;
Minor repairs; and
Administrative and strata management fees.
Owners pay regular Administration Fund levies to keep this fund topped up.
(b) Reserve (Sinking) Fund
This fund is used for larger, non-routine expenses, for example:
Major roof repairs or replacement;
Replacement of lifts or significant plant and equipment;
Repainting or resurfacing large areas; and
Other significant works anticipated over the long term.
Owners pay Reserve or Sinking Fund levies to build a pool for these future costs.
From a strata perspective, both levies are just “strata contributions”. But from a retail leasing law perspective, each line item within those contributions needs to be tested against the CT Act.
4. So what can be recovered from a retail tenant?
The safest way to think about this is to break it into three buckets.
Bucket 1 – Genuine operating, repair and maintenance costs (usually recoverable)
These are the types of items that can usually be passed on, whether they sit in the Admin or Reserve Fund, for example:
Cleaning and waste removal for common areas;
Common area lighting and power;
Routine maintenance of common property (e.g. general repairs, minor works);
Building insurance premiums;
Security and fire protection services; and
Non-capital repairs – including some larger repairs where they do not amount to structural upgrades or new capital assets.
Provided the lease and disclosure statement:
Clearly identify these as recoverable outgoings; and
The landlord complies with its estimate and annual statement obligations,
these items are typically recoverable.
Bucket 2 – Management and administration costs (not recoverable)
This includes:
The strata manager’s fee;
Strata company administration costs; and
Any other cost that is really a management or administration fee, rather than a cost of operating, repairing or maintaining the property.
Even if those fees are embedded in a strata levy, a retail tenant in WA cannot be required to pay them. If the lease purports to do so, that part of the clause is void.
Bucket 3 – Capital works and structural upgrades (not recoverable)
This covers, for example:
Construction of the centre or building;
Structural extensions or major redevelopments;
Structural upgrades or major refurbishment; and
Landlord’s plant and equipment (new lifts, major HVAC plant, etc.).
These types of costs are often funded through the Reserve/Sinking Fund. But under WA retail leasing law, they must remain a landlord cost and cannot be recovered from a retail tenant (again, even if the lease says otherwise).
5. The Administration Fund in practice
The Administration Fund is usually a mix of:
Recoverable operating items (cleaning, repairs, utilities, insurance); and
Non-recoverable management/administration overhead.
For landlords, the risk is that the lease or disclosure statement simply lists “Strata Administration Fund” as a recoverable outgoing, without carving out the management/admin components. That approach does not comply with the CT Act and can lead to disputes or refunds later.
For tenants, a good due diligence step is to request the current strata budget and:
Identify which line items are clearly operating, repair or maintenance costs; and
Ring-fence anything that looks like strata management or general administration.
6. The Reserve / Sinking Fund in practice
The Reserve or Sinking Fund is more nuanced.
On the one hand, it may include genuine repair and maintenance costs (for example, resurfacing the car park, major roof repairs or non-structural rectification works). Those components can potentially be treated as recoverable operating expenses.
On the other hand, Reserve Fund budgets often include amounts earmarked for:
Structural upgrades;
Major redevelopment; or
Replacement of major plant and equipment.
Those items are, in substance, capital works, and a retail tenant cannot be required to fund them – whether via a Reserve Fund contribution or otherwise.
For landlords, this means that either:
Only the repair/maintenance portion of Reserve Fund levies should be passed on (with a clear rationale); or
As a commercial and compliance safeguard, Reserve Fund contributions are treated as a landlord’s cost when modelling yield.
For tenants, a Reserve Fund levy should never be accepted as automatically recoverable. The underlying purpose of the fund contributions must be examined.
7. Why “Admin vs Reserve” is the wrong legal question
In many deals, the documentation will describe:
“Strata Administration Fund levies” as one category, and
“Strata Reserve Fund levies” as another.
From a strata perspective, that distinction is important. But from a WA retail leasing perspective, the legislation does not care which fund a cost came from; it only cares what the cost actually is.
In other words:
A Reserve Fund levy is not automatically non-recoverable, and an Administration Fund levy is not automatically recoverable.
Each cost within each levy must be tested against the CT Act.
This is a common source of confusion – and a common source of mistakes in outgoings schedules.
8. Practical tips
For landlords and managing agents
Obtain and review the full strata budget (Admin and Reserve) before preparing your outgoings schedule.
Map each line item into:
recoverable operating/maintenance;
non-recoverable management/admin; and
non-recoverable capital works.
Draft your lease and disclosure statement to refer to the types of expenses (e.g. “cleaning”, “common area electricity”, “building insurance”), not just “strata levies” in general.
Expressly carve out management fees and capital works contributions as landlord costs.
Maintain good processes for providing annual estimates and audited statements so your right to recover outgoings is not undermined.
For tenants and their advisers
Always request copies of:
the proposed outgoings schedule / disclosure statement, and
the current strata budgets (Admin and Reserve).
Check carefully for:
strata management fees and administration costs;
Reserve Fund allocations that are clearly for capital works.
Use the CT Act as a proactive negotiation tool, not just as a fallback if things go wrong. It is often easier to fix these issues before you sign than to unwind them years into the lease.
9. How we can help
For both landlords and tenants, the interaction between:
WA retail leasing legislation, and
Strata law and budgets
is not always straightforward. A one-line reference to “strata levies” in a lease can hide a range of recoverable and non-recoverable items with real commercial impact over the term of the lease.
We regularly:
Review leases, disclosure statements and strata budgets for compliance with WA retail leasing legislation;
Prepare or refine outgoings schedules that clearly separate recoverable and non-recoverable items; and
Act for both landlords and tenants in negotiating and documenting fair and compliant outgoings arrangements.
If you are negotiating a new lease, purchasing a strata retail investment, or reviewing the recoverability of outgoings for an existing tenancy, you are welcome to get in touch to discuss your situation.
Disclaimer: This article provides general information only and is not legal advice. It is based on Western Australian law as at the date of publication. You should obtain specific advice for your circumstances before relying on this information.
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For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.
The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.
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