A complete overview of reserves, levies, finance, and hybrid funding models
INTRODUCTION
Capital works are an unavoidable part of strata ownership.
Every strata scheme, regardless of age or size, will eventually face major expenditure to repair, replace, or upgrade shared building assets. Roofs deteriorate; lifts reach the end of their useful life, waterproofing fails, and compliance standards evolve. The challenge for strata committees is not whether capital works will be required, but how they will be funded.
Understanding the full range of funding options and how they interact is essential for responsible decision-making. This guide breaks down the ABCs of funding capital works in a strata scheme, providing a clear framework for committees, owners, and strata managers.
WHAT ARE CAPITAL WORKS?
Capital works refer to major repairs, replacements, or improvements to common property that extend the life, safety, or functionality of a building.
Typical capital works include:
- Roof replacement or major repairs
- Concrete remediation
- Façade restoration
- Waterproofing and membrane replacement
- Lift replacement or refurbishment
- Fire safety and compliance upgrades
- Electrical, plumbing, or mechanical plant replacement
Unlike routine maintenance, capital works are usually high-cost, infrequent, and planned over longer time horizons.
WHY FUNDING CAPITAL WORKS IS OFTEN CHALLENGING
Funding capital works is one of the most contentious issues in strata governance.
Challenges commonly include high upfront costs, diverse owner financial circumstances, competing priorities, limited existing reserves and/or fear of levies or borrowing.
Without a clear strategy, committees can become reactive, delaying works or defaulting to suboptimal funding choices.
THE ROLE OF THE CAPITAL WORKS FUND
The capital works fund (sometimes called the maintenance fund or sinking fund) exists specifically to help fund future major expenditure. Regular contributions allow schemes to accumulate funds over time, reduce reliance on special levies and plan for predictable expenses.
However, many schemes underfund their capital works fund due to poor forecasting and pressure to keep levies low and unforeseen significant projects. As a result, reserves are often insufficient when works arise.
THE IMPORTANCE OF A CAPITAL WORKS PLAN
A capital works plan is the foundation of effective funding. It provides a forecast of expected works, estimated timing and costs and a basis for levy setting. Plans should be reviewed regularly and treated as living documents. Ignoring recommendations within a plan increases the likelihood of financial shock.
OPTION A: USING EXISTING RESERVES
If sufficient funds exist, capital works may be funded directly from the capital works fund.
Advantages:
- No borrowing costs
- Simplicity
Limitations:
- Depletes reserves
- Leaves little buffer for future works
- May require levy increases later
Using all available reserves can expose schemes to risk if unexpected issues arise.
OPTION B: SPECIAL LEVIES
Special levies involve raising additional contributions from owners to fund specific works.
Advantages:
- Avoids interest
- Clear linkage between levy and works
Limitations:
- Financial hardship for some owners
- Increased arrears risk
- Conflict and delay
- Potential forced sales
Special levies are often the most visible source of tension within strata schemes.
OPTION C: STRATA LOAN FINANCE
Strata finance allows schemes to fund works immediately and repay the cost over time.
Advantages:
- Enables timely action
- Spreads cost more evenly
- Preserves reserves
- Reduces upfront financial pressure
Limitations:
- Interest costs
- Requires governance discipline
When used strategically, finance supports proactive asset management rather than reactive fixes.
OPTION D: HYBRID FUNDING MODELS
Hybrid funding combines elements of special levies and strata loan finance.
Examples include:
- Partial use of reserves with a smaller loan
- Allowing some owners to pay upfront and avoid interest, while others use strata loan finance
Hybrid models increase flexibility and fairness, particularly in diverse communities.
CHOOSING THE RIGHT MIX
In choosing the right funding option, the committee needs to consider:
- Urgency of works
- Total cost
- Owner demographics
- Owner financial capacity
- Existing reserves
- Long-term plans
The goal is balance — not avoidance of any one option.
COMMON MISTAKES TO AVOID
Common pitfalls include:
- Delaying works to avoid difficult conversations
- Underfunding reserves
- Relying solely on special levies
- Treating borrowing as failure
Education and planning reduce these risks.
THE ROLE OF STRATA MANAGERS AND ADVISERS
Strata managers play a central role in coordinating funding discussions, ensuring compliance, and supporting communication.
Engaging advisers early improves outcomes and reduces conflict.
LONG-TERM THINKING AND ASSET PROTECTION
Capital works funding decisions affect property value, safety, and community trust.
Buildings that plan, communicate, and act proactively are better positioned to protect owner equity over time.
FINAL THOUGHTS
Funding capital works is one of the most important responsibilities of a strata committee.
By understanding the ABCs; reserves, levies, finance, and hybrid models, schemes can move away from crisis-driven decisions and towards sustainable, well-governed asset management.
Thinking About Funding Works in Your Strata Scheme?
Every building is different. The right funding approach depends on timing, owner mix, and long-term plans.
If your committee is exploring options, you may find it helpful to speak with a specialist who understands strata finance and owner dynamics.
To receive an obligation-free loan proposal for your strata scheme, complete the following form: Request a Loan Proposal