Unbalanced: When owners stop paying levies


With inimitable timing SCA (Vic) President Julie McLean has posted about the dangers of letting individual owners’ levy debts pile up.

As you’ll see from these posts to the Flat Chat Forum, some strata schemes are carrying horrendous levels of levies debt, partly because nobody wants to see people who are already doing it tough being forced to sell their homes. But the bills still have to be paid, so what do you do?

The Delicate Balance: How to Support Owners in Debt Without Compromising Your Owners Corporation’s Finances

Higher interest rates and inflation have considerably increased household expenses over the past year. There has also been an increased media focus on strata fees, bankruptcy, and affordability.

With the latest RBA hike and rumours of more to come, owners corporation committees can expect a rising number of debtors and an upsurge in cries for help from their community.

Committees with good governance policies in place may have already considered strategies for payment plans and waiver of penalty interest. But what about those who haven’t?

The starting principle is that an owners corporation is not a bank, nor does it have a statutory obligation to provide a line of credit. If an owners corporation chooses to offer payment plan facilities, it has to have the financial capacity to do so. Just because an owners corporation is well-funded, that does not mean it has the financial capacity to carry debtors for the long or short term.

An owners corporation raises funds for a specific purpose usually across two types of funds: Administrative Fund & Maintenance Fund. Both funds have been raised for specific purposes, and funds cannot be expended on “other purposes” without further approval from owners, including by special resolution in the case of the Maintenance Fund.

However, if a surplus has accumulated year on year from the Admin fund, this source of funds could be used to support owners who are in need of a payment plan. By understanding how much surplus funds an owners corporation has, it can identify its financial capacity and how long it can support owners in debt without impacting the statutory functions and obligations for the upkeep of the common property.

Once the surplus funds have been exhausted, it is time to start recovery processes, unless other owners are willing to contribute more to support their neighbour.

The owners corporation may consider borrowing funds from a bank or other facility, but the purpose of the loan being to provide a line of credit to an owner outside of the collection of levies may mean the OC is considered an unregistered lending facility and could be subject to regulatory requirements under the National Consumer Credit Protection Act 2009.

Top tips for committees:

  • Identify your financial position and capacity to carry before agreeing to a payment plan. Document this in your Financial Management Policy.
  • Requests for a payment plan should be in writing and outline the owner’s situation and capacity to pay.
  • If a payment plan is offered, have the terms and conditions crafted by a legal practitioner.
  • If there is a default, move immediately to the debt recovery process.

Top tips for owners:

  • Don’t ignore the situation. Be proactive and get on the front foot before you get too far behind.
  • There is no obligation for the other owners to carry you, so be respectful at all times.
  • Propose a payment plan that addresses both the debt and ongoing levies.
  • Understand that continued non-payment of levies can lead to the sale of your property and will impact your credit rating.

A committee is faced with tough decisions and should always seek legal and financial advice before borrowing money or offering payment plans to ensure that they are complying with all relevant laws and regulations.

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      With inimitable timing SCA (Vic) President Julie McLean has posted about the dangers of letting individual owners’ levy debts pile up. As you’ll see f
      [See the full post at: Unbalanced: When owners stop paying levies]

      The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
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