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Nobody likes paying levies but who pays to run the building when others just won’t do it?
Two correspondents have this problem. One is chair of a neighbourhood association where many owners are behind on their levies. Ironically, this strata plan’s over-arching community association doesn’t hesitate to charge interest if they are late in kicking levies up to them.
The other one is in a small six-unit block where an unemployed widow is consistently and considerably behind on her payments. Legal action, they fear, could lead to her either being thrown out of her home or, more likely, a token amount being paid from her Centrelink account (helping no-one). The question in both cases is, what to do?
Especially in the case of the unemployed widow, there is an admirable desire to help your neighbours. However, you have to draw the line somewhere and that would be right on the border between being considerate and being taken for granted.
If you can’t afford to pay your levies, other owners are entitled to say “not my problem.”
The Strata Act allows for a penalty of 10 percent interest to be charged on late levies payments. It also allows for the costs of debt recovery to recouped from the non-payer. But that doesn’t mean that you will get all your legal fees back when you take late payers to court. It’s more complicated than that.
However, the threat of increased charges can often get late payers to pay up.
In America, some management committees have started denying access to facilities like swimming pools and even parking to non-payers. You’d need a by-law to do that here but ‘unfinancial’ owners lose their rights to vote so passing one might be easier than it sounds.
In both of the above cases, the correspondents would be advised to contact a specialist strata lawyer who’s also experienced in debt collection to tell them whether or not it’s worth pursuing and what the alternatives are.
You can read both cases in full on flatchat.com.au/forum. Log on to join in the discussion or ask your own question.
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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Hi Jimmy,
I came across this article in the Sydney Morning Herald. May I please clarify a few points:
Community Association, Neighbour Association and Strata Schemes
There may be some developments in which a number of small strata schemes together form a large community scheme and that community scheme is managed by a Community Association. The Community Association comes into existence upon the registration of a community plan.
Likewise, a neighbourhood scheme is managed by a Neighbourhood Association, which comes into existence upon the registration of a neighbourhood plan.
However, a Community Association would not be the “overarching” body in charge of a neighbourhood scheme. Perhaps the correspondent might have meant that s/he lives in a strata scheme, within a larger community or neighbourhood scheme.
2. Obligation to strike levies
So far as the article relates to a strata scheme, under Division 2 of the Strata Schemes Management Act 1996, an Owners Corporation must :
a. estimate how much money it will need to credit to its administrative fund and to its sinking fund; and
b. determine the amounts to be levied as a contribution to its administrative fund and its sinking fund; and
c. levy on each owner, such a contribution.
The amounts levied then goes toward the costs of maintaining the common property, for which the Owners Corporation has an obligation under section 61 and 62 of the Act.
If an owner fails to pay the levies as and when they become due and payable, that contribution automatically bears interest at the rate of 10% per annum under section 79(2) of the Act, unless the Owners Corporation by special resolution determine that that contribution is to bear no interest.
Similar provisions may be found in the Community Management Statement or the Neighbourhood Management Statement and in the Community Land Management Act 1989, with the exception that, under section 20 of this Act, a Community Association or a Neighbourhood Association may levy a contribution on the owners.
3. Penalties for Non-Payment of Levies
It is questionable if an Owners Corporation or an Association can exclude a person from using certain areas of common property or common facilities as a result of his or her failure to pay the levies, as implied, by way of a by-law.
The governing legislation does not say that an Owners Corporation or an Association can penalise a defaulting owner by excluding that owner from using certain areas of the common property or from using common facilities.
There is a doctrine in Corporations Law preventing the majority shareholders of a company from exercising their power in an unjust or oppressive manner so as to constitute a “fraud on a minority”. An Owners Corporation or Association should be careful when dealing with lot owners and their rights, so as to not go beyond the powers given to it under the respective governing legislation.
Kind regards,
Lelien
Watson and Watson Solicitors
Gosh, I feel like a cold hearted person for saying this – but sorry, you just have to pay up, and OC should initiate bankruptcy proceedings to recovery levies. If the OC has a consistent policy of chasing up levies, all owners will realise that falling behind will result in consequences. Strata levies are like taxes, they are not negotiable. Potential owners should consider their ability to pay the levies before buying into the plan. If the owner's circumstance change and they can no longer pay, then they need to consider alternative accomodation (move out to somewhere cheaper, and lease the relevant property to a higher income earner until it can be sold). I know this sounds cold, but upkeep of the property is everyones responsibility and freeloaders can't be tolerated.
The government should consider legislating a process that makes the bankruptcy process easier/quicker where it is because of non-payment of strata levies.
Warm regards, S Jones
I've had the same problem with non-payers in our self-managed Plan, and have found that the permitted 10% interest is no encouragement for these proprietors to pay-up.
Further, the Administratve Fees that our Plan applies to the arrears in an effort to cover reminder letters, final notices, and collection fees under our Debt Recovery Process were NOT taken into consideration the one Court Judgememnt that we obtained, where by the way the Court-Ordered Payment amount will never see the Proprietor's arrears paid before the subsequent Levy Payments become due.
Out of despiration, I put a Motion before our last AGM whereby Contributions would be increased by 20%, and put a complementary Motion to offer a 20% discount on Contributions that were received in-full before the payment due-date.
Those Motions were passed, and thus far it's worked a treat!! Typically, we had 6-8 Proprietors out of 27 in arrears to varfying degrees up to 90 days (most would make part-payments at every reminder letter), and presently we have only one Proprietor in arrears, and only for around 50 days, and making regular part-payments to catch-up.
Worth a try !!!!
Cheers – The Whale
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