It’s easy for owner corporations to ignore their financial management responsibilities and focus on enforcing by-laws and carrying out repairs and maintenance. To them, financial management is just something they need to think about when it’s time for the next Annual General Meeting and for striking levies. Fortunately, most owners make all payments on time and they have enough money coming in to ensure bills are paid on time.
Things don’t always proceed so smoothly however. Sometimes, financially strapped owners delay in paying their levies or just don’t pay at all. When this happens, it hampers the owners corporation’s ability to fulfil their commitments.
The Strata Schemes Management Act 2015 (the “New Act”), has taken these scenarios into account and has prescribed strategies for dealing with them. The New Act facilitates the recovery of debts and sets out protocols for establishing payment plans.
Interest on Unpaid Contributions
By default, any levy that is delayed by more than a month beyond the due date attracts simple interest, at a rate of 10% per annum. It was intended that levying interest on the unpaid contribution would encourage owners to make the payments they owed. However, this did not always happen. The 10% interest rate works out much lower than credit card interest rates (for example), owners sometimes use their available funds to pay off their other debts while ignoring their obligations to pay levies. Under these circumstances, the introduction of more forceful procedures to collect debt was inevitable. The New Act empowers the owners corporation (by resolution) to annul the interest rate completely.
The big question then is how is the owners corporation expected to get the funds they need to ensure by-laws are enforced and proper maintenance and repairs are carried out if an owner defaults on their payment and the 10% interest continues to accrue?
Ideally, the owners corporation and lot owners who are in financial difficulty should be able to work together towards finding a way to get the levies paid, even if it means spreading it over a period of time as opposed to paying it all at once. The Old Act did nothing to resolve the issue of unpaid contributions by way of agreeing on payment plans. Not surprisingly, without a proper procedure in place, the owners corporations dealt with owners arbitrarily, and sometimes, inconsistently.
In order to streamline the process, the New Act has set a formal and more transparent procedure for handling the non-payment of levies. Now, an owners corporation has the authority to pass a resolution at a general meeting regarding making agreements to enter into payment plans for any unpaid levies. Moreover, overdue levies could be handled either generally or in specific cases.
The New Act stipulates that a payment plan should not extend to a period longer than 12 months. If a lot owner wants to extend the plan, it can be done by way of a resolution at a general meeting. The payment plan should be in writing and must include details of the owner, including name, address for service, overdue amount, and the interest being levied. The written plan should also have a payment schedule and the mode of payment.
This responsibility can be delegated to the strata manager whereby, on request, the manager has the authority to enter into payment plans with lot owners. The manager’s decision is based on whether or not the owners corporation has adequate funds to meet its financial obligations. The New Act also lists a number of notifications and statements that have to be issued in order to finalise the payment plans.
Interestingly, we have observed the take-up of payment plans increase in recent times despite the fact they were informally available before that
Recovering Unpaid Contributions
Under the Old Act (i.e. Strata Schemes Management Act 1996), filing a case in court was the only way to get payments from lot owners who could not, or would not, pay their levies. However, this was not just expensive, it was also time-consuming, which only further drained the owner corporation’s funds.
The New Act has addressed this particular problem by enabling NSW Civil and Administrative Tribunal to recover unpaid contributions, making it less confrontational and economically more feasible. One of the restrictions is that while the Tribunal can give an order, it does not have the power to enforce the order.
The Tribunal can order the lot owner to make the following payments that are payable by the lot owner or any other individual:
- > Levies that are not paid one month after the payable due date
- > Accrued interest on the unpaid levies
- > The expenses incurred by the owners corporation to recover unpaid levies
The Tribunal’s role is limited to facilitating the recovery of unpaid contributions for amounts up to $30,000. Notwithstanding, the owners corporation still does have choice as to whether to go to court to enforce payments.
One additional change in the New Act is that an owners corporation can only take action against a defaulting lot owner after the owner has been given a minimum 21 days’ notice of impending action. The notice should list the details in an itemised manner, stating clearly the amounts to be paid towards levies, accrued interest, and the owners corporation’s expenses. Under the Old Act, this decision was taken by courts, but now it has become a part of the New Act.
Costs and waiting times can be greatly reduced by seeking the help of the Tribunal instead of going to court. One issue with this is the Tribunal very often doesn’t have prior experience in dealing with such matters. Additionally, the lack of power to enforce payments also limits the functioning of the Tribunal. As a result, many cases that started out at Tribunal level are eventually reassigned to a lawyer, for enforcement in the court system, which means we are back to the old approach!
For now, we will continue to wait and see whether or not the Tribunal will prove effective at helping owners corporations to collect their due payments. It seems likely though that the court system will continue to be the preferred route in the shorter to medium term.
If you enjoyed this article, please feel free to share or give me some feedback.
Contributing writer: Alana Anderson | Senior Strata Administration Manager | Beaumont Strata Management