- This topic has 7 replies, 5 voices, and was last updated 12 years ago by .
-
Topic
-
NSW STRATA SCHEMES MANAGEMENT ACT 1996 – SECT 79
(Interest and discounts on contributions)
paragraph 4 reads as follows:
“An owners corporation may, by special resolution, determine (either generally or in a particular case) that a person may pay 10 per cent less of a contribution levied if the person pays the contribution before the date on which it becomes due and payable”.
I would like to know, when making the special resolution required to allow a discount:
1. can we nominate a different percentage rate (or maybe even a set amount) of discount to be applied?
2. can a date be set before which payments will attract the discount being offered? For example, 7 or more days before the levy due date.
-
Replies
-
I don’t think this clause is prescriptive. It would be up to 10 percent and any date before the due date would be covered by the second part.
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.
Jimmy’s right, but on the basis of my first-hand experience, you need to make sure that the wording of your Plan’s Special By-Law is prescriptive, particularly with regard to business days vs calendar days, payments received vs payments receipted, dishonoured payments, and how the 10% (max) discount is applied (e.g. quarterly in arrears in our case).
By the way, if your objective is to ensure that Proprietors’ Levy Contributions are made (at least) on time, again on the basis of my first-hand experience, the permitted 10% (max) discount is about as effective as an incentive as the permitted 10% interest on arrears is a penalty/deterrent to late payments; not!
It's a special resolution which means it needs a 75 percent vote in favour at a general meeting and it would have to be registered. It would also need a 75 percent vote to rescind, otherwise it sits there in perpetuity.
Rehardging Whale's comment about how effective (or not) it is, I think it will only work with enthusiastic marketting of the discount and aggressive enforcement of the penalties for late payment. Between paying early and paying late, that's a 20 percent difference in your levies. If that doesn't get their attention nothing will.
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.
Just to give an example of whether having 10% discount for early payment of levies is effective or not, in our 70 lot complex, up to 2/3 of owners pay their levies before the due date.
The rest pay on the due date. At any one time we have a very small amount of arrears for levies. Not sure if we're just lucky or whether this is reasonably typical.
For me, the incentive of saving upwards of $400 a year via the discount is sufficient incentive for me to schedule my levy payment a day or two before the due date so that I qualify.
We used to have the 10% discount and then resolved (by special resolution) to rescind it. The discount had been suggested by our then strata managers who were not very good and used it to promote themselves, i.e. we can get you a discount on the levies. This is misleading.
It is my understanding that you don't require a by-law, the legislation just requires a special resolution that operates until it is rescinded. If a by-law were required the legislation would say so.
There were a number of reasons why we rescinded the discount but these are/were some of the considerations:
1. the benefit is illusory. If you have a budget of $100,000 for the coming year, i.e. that is how much money you will need, then you have to then factor in the effect of the discount. If everyone pays prior to the due date, you will be $10,000 short on the budget so you will have take that into account in setting the budget and increase the budget to $110,000. Effectively then, there is no discount.
2. a discount has little or no effect in making people pay on time. People who don't pay on time are not going to change their ways because of a 10% discount.
3. conversely, a discount for those who pay prior to the due date unfairly benefits those owners, as owners who pay on or after the due date are then subsidising the former. Why should someone who pays one day before the due date receive a discount, when a person who pays on the due date or even one or two days or a couple of weeks later does not?
Bear in mind that the standard 10% interest charge does not apply to levies until one month after the due date, i.e. you have one month to pay.
More generally – I am in a small strata where overall we don't have that much of a problem with levy payments. There is one owner who habitually falls behind, sometimes for more than a year, but they always pay – eventually. Our view is that as they are paying 10% we are getting a better return on the money than we would if it were invested. Obviously circumstances differ from strata to strata, and if you are in a larger complex where half or more are behind on payments that would be a nightmare, but a discount is not going to change anything.
Sorry – I meant Special Resolution; slip-of-the-finger!
I guess the effectiveness of an early payment discount (EPD) depends on the “mix” and number of Proprietors, and the amount of the Levy Contributions.
For our Plan, the EPD meant that the usual early payers made sure that they were a min 7 calender days early, the usual on-time payers paid early, and most of the the habitually late payers paid a few days either side of the due date.
The biggest influence was on Rental Agents holding properly delegated responsibilities to directly receive their Clients' Levy Contribution Invoices and to pay those from rent receipts. These Agents typically paid on their Terms, like the end of the month after the invoice month, which put these payments typically 44 days in arrears.
A short e-mail to these Clients (our Proprietors) resulted in most Agents now paying in time for the EPD to kick-in; matter-of-fact, as of right now all 27 of my Proprietors and their Agents have paid the most recent Levies (due 1/4).
If SMIG's looking to encourage on-time payments, taking on-board scotlandx's comments about the permitted interest on arrears (actually 0.8%/mth), think about the O/C resolving to charge “administrative fees” for reminder letters issued at 7, 14, and 30 days after the Due Date for payment.
These Fees were an effective further incentive for our Plan as cumulatively they far exceed the permitted interest charge; just make sure that the Fees can be justified by the effort involved in producing the reminder letters.
- You must be logged in to reply to this topic.