‘Cruel levies’ debt story a cheap shot at strata

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Bankruptcy Law books with court gavel

COMMENT by Jimmy Thomson:

The Sun-Herald article this week about the elderly couple who supposedly may be forced to sell their apartment or face bankruptcy could be used as a training tool for journalists who want to write about strata.

Bad enough were some of the comments from readers, ranging from the predictable “strata is Hell – don’t go there” reaction of the wilfully ignorant, to the “how can this happen?” response from people who clearly don’t understand how strata works.

Apart from that, the story was a typical anti-strata spray where the legal responsibilities of the owners individually and collectively weren’t even mentioned. Instead it became a clarion call to curb the powers of owners corporations. We are not impressed.

To tell the story in a nutshell (for those of you without a Nine newspapers subscription) three years ago an elderly couple were hit with an $18,000 special levy for their share of window repairs in their unit block.

Because they were unable to pay the full amount, a judgement at a local court last year ordered them to pay about $24,000 and since then their debt has allegedly risen to $44,000 and they are facing bankruptcy proceedings. 

Make no mistake, this is highly stressful for them, especially since the gentleman concerned is not in the best of health.

However, the writer of the story entitled “Cruel strata bill threatens elderly couple with homelessness” has clearly decided that it’s the other owners in the building who are at fault. The headline alone prompted a pile-on by anti-strata ignoramuses.

The stupid comments were not the journalist’s fault but she quoted ‘expert’ statements like: “… reform is needed to curb the power of owners’ corporations and strata companies …” without offering a counter view.

So what are they saying?  Owners corporation have a legally enforceable obligation to maintain and repair common property, but they shouldn’t be able to pursue owners for the levies required to pay for the work?

Financial options

A financial adviser quoted at length in the story said the owners corp had other options, such as a payment plan that was affordable to the owner.

OK, fine.  But “affordable” shouldn’t be at the expense of all the other owners in the block, so it would have to cover interest fees, for instance.

And they’d have to keep up their payments, which they didn’t on one payment plan that was offered. Instead, it seems some clever-clogs lawyer told them to stop paying, a guaranteed trigger for debt recovery action.

So why wasn’t this lawyer named and shamed in the article?

“People also asked questions about the lawyer’s role,” the journalist said in an online comment on her article. “The financial counsellor will look into this in due course but there are more pressing matters right now.

“I am not sure if the couple had written advice to stop paying or what they can prove. It wasn’t the focus of my story.”

No, the focus of the story was the supposedly cruel and heartless owners corporation. One financial counsellor said the law should change to protect elderly pensioners from strata-initiated bankruptcies.

Look, bankruptcy is bad for everyone concerned, especially unsecured creditors (which the strata scheme would be). And the “fire sale” scenario, where the property is sold off for a paltry sum to clear the debts is real.

But it really doesn’t need to come to that.  There are may other options that could and should have been explored in this case.

And perhaps the financial counsellor should be suggesting that the law be changed so that strata owners are compelled to put enough money into their sinking fund to cover future maintenance and repairs, or arrange a line of credit to be used as and when the cash is needed, so that these scenarios can be avoided.

FYI, in NSW strata schemes have to devise a 10-year maintenance plan, reviewed every five years, but they don’t have to fund it – they only have to discuss how they plan to fund it. In far too many schemes, the decision is to pay no more than they absolutely have to.

Windows whim?

And why wasn’t it pointed out that failing to replace worn-out windows in a 50-year-old building is not an option.

‘How can replacing windows be so expensive?’ asked a couple of readers.  Well, this is a big apartment and replacing windows in high-rises costs more than in houses because you need scaffolding and all sorts of safety measures.

So how serious is the couple’s financial plight? They had paid $22,000 for the three-bed unit nearly 50 years ago and it is now probably worth close to $1million or more (certainly more than the $770,000 median price for a two-bedroom unit quoted in the story) . 

Their levies are so high because the apartment must be one of the more valuable units in the block.

Readers comments

One reader commented (and the comments are well worth reading, for better or worse) the law was at fault because it didn’t take into account older people who’ve lived in unit blocks for decades and can’t afford to pay for repairs.

Not true. Sinking (or maintenance) funds have been around for decades.  It’s just that back in the day, many owners chose not to contribute to them. Now, for some, the rainy days for which they didn’t save have finally arrived.

Then there was the clear implication that the owners corporation could have chosen not to charge the couple for fixing their windows.  How does that work? Everyone else in the block pays the couple’s share too?

You know you are dealing with writers or sub-editors who have little idea of how strata schemes operate, when you read comments like: “… the owners’ corporation – also known as a body corporate, strata committee or owners’ strata plan – voted to upgrade the old aluminium windows and raise a special levy to pay for it.”

Call me pedantic but the owners corporation and strata committee are very different animals.  And as for “owners’ strata plan” – that’s a new one on me.  Also, taking legal action is not a decision that the strata committee can even make – that can only be done by a majority of owners at a general meeting.

Basic facts

The strata managers declined to comment, which is fair enough, but the owners were entitled to see the records of meetings and decisions made. If the owners corporation was acting wrongly, the evidence would be there.

Many readers responded to the one-sided information in the article and other readers’ comments by trying to inject some basic facts into the discussion, without being unsympathetic to the owners’ plight.

But this felt like a confected “scandal”.  In later comments on her own story, the writer revealed that the couple had paid back $13,000 of their $18,000 debt but thanks to interest and legal fees, they now owe $44,000.

There’s no way they can owe $44,000 to the owners corp based only on the $3,000 left of original debt or even the $23,000 debt awarded to the owners corp by a court last year. That literally doesn’t add up.  By the way, there’s another omission from the story: there is a mandatory 10 percent interest charged on unpaid levies, established in strata law.

I’m guessing there would be legal fees in there for cases the owners fought that they could never win. Why couldn’t they win? Because the owners corps are legally obliged to fix the windows and owners are legally obliged to pay their share.  It’s as simple as that.

And there will be admin and debt collection fees – costs incurred by the strata scheme and all of which are legitimately chargeable back to the debtors in strata cases.

So why wasn’t this story about lawyers and financial “experts” giving an old couple crap advice and then leaving them to pay for it?

Maybe it’s easier to write the “nasty body corporate” story, rather than criticising the real culprits in this.

Gofundme

Meanwhile, apparently there’s a Gofundme appeal set up by a relative, which at time of writing has reached $25,000 and is expected to eventually clear their debt.

Call me cynical, but I wouldn’t contribute a brass razoo.  This couple is sitting on an apartment worth a million dollars and could probably raise a loan or a reverse mortgage in the blink of an eye. Or downsize to a smaller unit in the area or even the same block.

I’ll keep my cash to myself, thanks, or save it for people who really do have nothing.

But it’s hard when you’re old and don’t understand how things work.  That’s why this story should be about how a string of bad advice led an elderly couple into ever-increasing quicksand of debt that they need never have suffered.

Instead it’s just a cheap shot at strata – an easy target – and a sad indictment of how so many in the media and the community in general don’t understand how strata works.

If you liked this post or found it helpful, please share it with interested friends using the social media buttons. If you wish to respond, registered readers can add a comment at the foot of the story or, preferably, on the Flat Chat Forum.

Purely by chance, David Sachs from our sponsors Sachs Gerace Lawyers will be on the podcast next week to talk about strata levy debts and what it means when an owner can’t pay or won’t pay. He also talks at length about how and why you should avoid filing for bankruptcy, at all costs.  Don’t miss it – it’s good stuff.

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