Should owners corporations recover levies during the COVID-19 pandemic?

Should owners corporations recover levies during the COVID-19 pandemic?

2 November 2020

By Andrew George

The COVID-19 pandemic has brought with it much financial and economic turmoil. Despite efforts such as the JobKeeper scheme, there is a lot of uncertainty in this economic climate. Regardless, it is important that an owners corporation continue to recover outstanding levies.

The Effect of Levies in Maintaining Common Property

Under section 106(1) of the Strata Schemes Management Act 2015 (NSW) (“SSMA”), an owners corporation must “properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation”. This is a “strict liability” in that an owners corporation can be found in breach of this section through no fault of its own. That is to say, inaction or ignorance is not a defence.

Section 79(1)(a) of the SSMA provides that an owners corporation must estimate annually how much expenditure will be required to maintain the common property within a strata scheme. The decided estimates become “contributions” that lot owners are liable to pay in shares proportional to the unit entitlements of their respective lots.

The COVID-19 measures the government has put in place has not removed the obligations of the owners corporations. Accordingly, it is necessary that levies continue to be raised to ensure that the owners corporation does not incur liability for a failure to abide by the SSMA. A failure by the owners corporation to uphold its obligations under the SSMA leaves it vulnerable to legal action.

A prudent owners corporation should take reasonable steps to ensure payment of all levies as they become due and payable as this will assist in ensuring an owners corporation is maintaining its obligations under the SSMA. To ensure compliance, it is recommended that levy recovery action be taken against lot owners who are not paying the entirety of their contributions as they become due and payable, as the shortfall will otherwise be covered by the remaining lot owners. Who pays for the costs of recovering outstanding levies?

How are levies calculated?

Legal costs incurred as [part of recovering outstanding debts are generally recoverable under section 86 of the SSMA (“Section 86 Costs”).

Examples of claimable Section 86 Costs include:

  • Sending arrears notices;
  • Filing and service fees;
  • Solicitor fees and disbursements;
  • The costs of taking enforcement actions i.e. writs for levy of property, examination notices and garnishee orders; and
  • Bankruptcy and winding up proceedings.

In taking levy recovery action, unpaid contributions are recoverable as a debt together with interest and Section 86 Costs. Noting that costs incurred in taking levy recovery action is usually claimable, taking such action is ordinarily the best strategy to maximise the recovery of all amounts the owners corporation is entitled to.

When should an owners corporation pursue levy recovery action?

To maintain its obligations under the SSMA, it is advised that action be taken sooner, rather than later. By taking action and obtaining judgement against a lot owner who refuses to, an owners corporation can start enforcing the judgement against the lot owner through a variety of means.

Lot owners who are contacted early (while the debt is still small) typically have a greater ability to make regular payments to reduce the debt they owe in comparison to those who are not contacted until the debt is large.

Furthermore, not taking action against lot owners owing outstanding amounts may send a bad message to other lot owners that no action will be taken if they too do not pay their levies. Additionally, it places an unfair burden on those lot owners that do pay their levies.

Owners corporations are encouraged to consider levy recovery action in any instance of arrears.

REINSW would like to thank Strata Central and Chambers Russell Lawyers for the use of this article.

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