ABC levies debts report misses the mark

My comment on the topic of Arrears of Levies is:

• The duty of the OC to repair and maintain, to pay insurance premiums, etc is hard coded into the Act and unavoidable.
• The cost of repair and maintenance, insurance, etc is funded only by levies.
• The duty of a lot owner to pay levies must be regarded as equally hard coded.
• The obligation to pay interest on arrears of levies is similarly (slightly less) hard coded but can only be reduced or waived by a general meeting.
• The obligation of the OC to collect arrears (within the provisions in the Act) must be regarded as equally hard coded.
• Community living should not oblige co-owners to support one of their number no matter how necessitous their circumstances.

The very sad truth is that if you can’t afford to pay the levies necessary to fund obligatory repairs and maintenance, insurance, etc, communal living with communal obligations is not for you. You must sell your strata unit and make arrangements which you can afford, including considering whether you can buy a house where you can do (or not do) what you like.

We’ve just been through this in a block of six units in Sydney.  One owner had two lots in the block (rented out) and fell behind in levies.  Seriously behind.  I don’t know anything about his financial situation but I think some personal issues were impacting his income.  The levies had been temporarily increased for 2-3 years (all owners were on the Committee so he was part of that decision) because we needed to replace the lift, which is a huge expense for just six lots and five owners.

After he hadn’t paid these hefty levies for more than a year, we asked the strata manager to take action (should have happened earlier but for some reason the strata manager dropped the ball).  Collections activity escalated over about 12 months and ended up with bankruptcy.  He then sold both apartments.  New owners moved in and we discovered that his tenants had been living with all kinds of unresolved maintenance issues, some of which were the responsibility of the owners’ corporation.  So we’re now up for maintenance that might not have been so bad if he’d reported it earlier, but I think he was trying to keep his head down because he owed so much money.

The point is, during that 2-3 year period, four owners were keeping the building going – paying all the bills and also saving for the lift.  The lift was essential as we have frail people in the building who rely on it to get upstairs from the carpark.  So it had to happen, even if we were still chasing his portion of the funds.  The four of us who were paying were really struggling as these levies were huge and we had to keep paying these high levies to make up for his shortfall.

Now that the units have changed hands, the outstanding levies have been paid through the settlement process and we have sufficient funds to cover the lift and hopefully enough left over to pay for the unexpected maintenance on his apartments.  But we were seriously panicking about that settlement process, unsure whether there would be enough money to pay us.  If he was over-mortgaged and also owed money to the state government for unpaid land tax, the owners’ corporation could have been left high and dry.  Owners’ corporation is an unsecured creditor, so among the last to be paid.  We really need that protection currently provided in the rules – in part so that the debts don’t get so high they are unmanageable and cause perverse outcomes (which happened in our case with him owing so much money he didn’t feel he could ask for necessary maintenance work).

Jimmy-T wrote:

The question is, would you as an owner be prepared to carry a share of the debt of another owner until they sorted themselves out, or would you send in the bailiffs (figuratively speaking) at the first signs of long-term financial distress?

I have been on both ends of this. When we bought our unit, we thought all the conveyancing had gone through but one step didn’t happen. The solicitor did everything correctly and there were two cheques (it was the olden days) from his trust account to pay off the considerable unpaid rates and owners corporation levies that had been subtracted from the sale price. The former owner had their money but the two cheques were still attached to the file by paper clips when the ACT Law Society decided to freeze the trust account and those two cheques could not be paid until the the trust account was unfrozen. I have no idea what the solicitor had done to cause the ACT Law Society to freeze his trust account on the day of settlement of our unit purchase.

We were young and had scraped together every penny for a very small deposit and had no way to find any more for these debts. We had to implore the Executive Committee to accept our assurance that we had been assured by the Law Society that those cheques would be able to be cashed eventually. Some months later, we were informed that the payments had been made and we were off the hook.

More recently, as treasurer, I have chased up several of our residents when they have fallen behind by 6 months to a year to discretely ask them to sort out a payment plan with our managing agent and to talk to me if they can’t work out anything. Some unit owners have fallen behind more than once but all have always caught up before the arrears got to be more than one year’s worth.

We have generally have only one or several units with arrears out of about a 100 units at any particular time. The ACT requires a general meeting resolution to do anything other than charging 10% simple interest and we have not ever done that but we have sometimes asked the managing agent to waive other fees such as for 2nd and later reminder notices. Sometimes there is a good reason such as a unit owner has died and the executor is still sorting out probate and will not have the cash until they are able to sell the unit.

We don’t have cash flow problems because 98% of units are typically paid up so we can afford to be a bit tolerant and the OC ultimately doesn’t lose due to the compulsory 10% interest.

Thanks Jimmy for shining a light on this very concerning issue and the prospect of the introduction of legislation that will harm many innocent people. Such a pity also that the ABC have been very biased and chosen to only show one side of the story.

My situation, a family member is a unit owner in a block of five. The other owners consist of an investor, an age pensioner, a person with a disability and an owner occupier.

My family member has an intellectual disability and has recently been diagnosed with a life threatening disease. In spite of the personal challenges my family member faces, (and the majority of owners being pensioners  on fixed incomes), all but one have continued to ensure their levies are up to date, that one person is the owner occupier.

This owner has been given many opportunities over the last few years to make arrangements for payment which have been ignored resulting in the debt now being many thousand of dollars. Understandably in a small complex this non payment is significant and very frustrating as this owner continues to enjoy the benefits of essential major work currently being carried out. Extremely disappointing also that this owner is aware of the hardships that others are facing.

If it is felt there is a need to make changes to the legislation maybe what would be fairest would be to move to a model where the bankruptcy trigger amount would vary depending on the number of units. In our situation the $10,000 threshold for bankruptcy is already too high. If this is introduced the government will effectively be giving the green light for owners to have a $50,000 line of credit resulting in a devasting impact on the lives of many, in particular vulnerable people who are making huge sacrifices to meet their commitments.