Body Corporate Levies and Prompt Payment Discounts

Body corporate levies are different from other sorts of accounts; they attach to the lot rather than the lot owner.

This is because a body corporate isn’t offering a service like a Strata Manager, or selling a product like Telstra. A body corporate is managing the affairs of a building for, and by, a group of lot owners.

Body corporates incur costs to do that and collect the funds to pay for those costs via body corporate levies.

Body corporate levies issued are the periods forecasted, apportioned costs. Each lot is responsible for paying their portion of the cost and the body corporate is relying on that payment to continue operating, or improving or whatever it is they’re currently doing.

Which also means, regardless of whether you pay your levies or not, those levies, or costs, must still be allocated. There’s no cutting you off because you didn’t pay. There’s no grace period whilst you get back on your feet. Every period the levies are charged to the lot.

Which is why finalising the levy account on a lot is an essential part of the conveyancing process or you could find along with your lot you also have a levy debt.

How Can A Body Corporate Offer A Discount?

So now I’ve made a big deal about a body corporate not being a commercial entity and not following all the regular laws of business, how can they offer a corporate strategy like discounting body corporate levies?

Body corporates must apportion estimated costs over the year. How they do that is really up to them, and, since most body corporates are managed by strata managers, professional administrators, they employ professional strategies.

And a prompt payment discount is a very effective tool for ensuring account payments.

It’s important to note that although any scheme can adopt the strategy it tends to be those who either have problems with collection or the larger, more complex body corporates with correspondingly large budgets and volume of arrears.

Calculating Body Corporate Levies with a Discount

Body corporates must collect their budgets.

If they elect to offer a prompt payment discount, say 20%, then they must increase their budget by a corresponding 20%. Or 10% would necessitate a 10% increase and so on. The budget amount must be the amount collected after the discount is taken off.

Invoices are simply raised with the addition amounts.

Those who pay by the due date pay the actual levy amounts.

Those who pay late, pay more.

The amount of “extra levies” collected by schemes from lot owners who’ve paid late is usually small. It all gets added to the individual funds and if it was substantial would simply reduce the amount of levies payable in the next financial year.

Prompt Payment Discounts & Levies in Arrears

There’s a common issue that comes up with prompt payment discounts and levies in arrears. Discounted payments are received after the due date has expired.

If you pay the discounted amount after the due date the payment will be applied to the full amount of the invoice and there will be a residual amount left on the lot account. The discount amount.

Body corporates do not write these amounts off. The strata manager takes care of accounts and they have no authority to make those kind of decisions. The committee does, and occasionally will.

The problem is that unpaid amount is levies in arrears.

It will stop you from voting at general meeting, except on resolutions without dissent. You will not be able to get involved with the committee or nominate. It will also stop you from receiving the next prompt payment discount until that amount is cleared.

Some body corporates allow up to seven (7) days after the due date to process payments to avoid this problem. However some do not, and the due date is the last day that payments can be received.

Reinstating Prompt Payment Discounts

Reinstating prompt payment discounts is as simple as a request in writing to the committee. Usually an email request is fine.

They may or may not approve, but nothing is lost by asking.

It’s amazing then how often lot owners drag their feet on this issue. But there’s a problem with that. Even small amounts are treated as levies in arrears. Interest may be charged on the outstanding amount. And as the balance grows it will eventually trigger the collections process and more costs will be added.

And of course until all levies in arrears are paid you cannot claim any more prompt payment discounts.

It’s not uncommon to see owners paying only the discounted amount period after period because they believe the strata manager made a mistake on the initial amount. Ignoring the situation is not a good strategy in this situation as the rules can be quite rigid.

It’s better to pay the outstanding amount and then ask for a reinstatement of discount.

The key is act early.

Adding, Changing of Removing a Prompt Payment Discount

As with most things body corporate to add, change or remove a prompt payment discount a resolution at general meeting is required.

Once approved the strata manager, or Treasurer, scales up the levy issue on the next levy notice and includes the discounted amount with due date.

It’s a straight forward process.

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Discounts on body corporate levies do contribute to quicker payments. They can also be quite a lot of work for the body corporate and create potential for disputes with lot owners.

Points to consider if your body corporate has or is considering a prompt payment discount.