In any group of people required to contribute financially on a regular basis there is inevitably going to be someone who defaults. In body corporate lexicon a levy issue that has been defaulted on, ie an invoice that has not been paid by the due date, is considered “Levies in Arrears”.
It’s a good idea to start at the beginning and discuss the process of levy issues, levy payments and how levies in arrears are treated.
How Levies Are Issued
Every year after the end of financial year a budget is created and the levies for the next financial year are proposed. The lot owners as a whole vote on whether or not to issue those levies at the Annual General Meeting (AGM).
I’ll assume that the levies as proposed are adopted because what happens when they don’t is a whole other story.
Levies are now set for the year.
Prior to each period coming due a levy notice will be created for each lot owner and despatched. The levy notice includes:
- Administrative fund levy
- Sinking fund levy
- Any other levy amounts
- Due Date
- Details of any discounts for prompt payment
- Any other already outstanding levy amounts
Most owners pay their levies on the due date.
Some body corporates allow up to seven (7) days after the due date to ensure all electronic payments have been processed before declaring the due date expired. For other body corporates, the due date is the due date. Once the due date expires any discount offered also expires.
Levy payments still due are now “levies in arrears”
When Does The Collection Process Start?
Seven days overdue is not enough to start the collection policy, and in some cases even if you’ve paid late you can still apply to the committee to have your discount reinstated.
So when does collection happen?
Largely it will depend on the body corporate and to a certain extent the strata manager appointed. As with all businesses some are more efficient than others.
The most efficient managers will have a process for collection that lot owners have voted on at AGM which clearly states what will happen when. Others do not and the collection process can be fairly hit or miss.
Another factor that impacts is the amount of levies payable. For instance if your quarterly levies are less than $500 then regardless of whether you pay or not the collection process may not be started until the amount in arrears is over the arbitrary $500 mark. The cost up to that point is larger than the expected pay off.
As a general rule of thumb if the levies are overdue more than 30 days the collection process may start.
Collection of Levies in Arrears
Again processes change from body corporate to body corporate but the general process, assuming non-payment at any stage, is:
- An Overdue Letter will be sent to the lot owner requesting immediate payment or contact.
- If the body corporate can charge interest (by-laws and general meeting motions are required) amounts will begin to accrue.
- A second Overdue Letter will be sent.
- The file may be referred to a Debt Collector who will continue with their own internal processes.
- A Letter of Demand is issued by a solicitor. Typically 14 days is given prior to legal action being instigated.
- An application is made in small claims court to obtain a judgement.
- Once a judgement is obtained steps are taken to enforce the judgement.
- A lien may be registered over the property if amounts remain unpaid.
Although the body corporate could enforce sale of a property for payment of levies they rarely do. Usually if a lot owner isn’t paying levies they’re also not paying the mortgage. Most body corporates wait for the Mortgagee to take possession of a lot and then chase them for payment of levies.
Collection Costs
The above process has many ongoing costs, costs that will initially be covered by the body corporate. But, the body corporate has no facility within their budget to meet these costs. And indeed why should the collective lot owners pay for the delinquency of one owner.
Consequently all costs incurred to collect levies in arrears are on-charged to the particular lot owners.
What those costs will be is individual to each lot’s particular circumstances. Some of the costs incurred may be:
- Interest
- Collection letters – although issued by the strata manager each letter attracts an additional cost from $20 – $50
- Solicitors fees for preparation of letters of demand, court documents and if the application is defended fees for preparation and attendance at court
- Skip tracing fees to find locations
- Outlays such as phone calls, emails etc
Disputing Costs
Levies are cut and dried.
All the lot owners have the opportunity to vote on those levies at general meeting, and once passed there is no way out. All the lot owners must pay the levies as set. The levies can be rescinded or changed, however only by another motion at general meeting or an Adjudicator / Court order invalidating the motion passing the levies.
That includes all levy amounts including regular and special levies and any other levies that might attach to the lot.
Collection costs are another matter.
A recent case, Westpac Banking Corporation vs Body Corporate The Wave CTS found that reasonable collection costs are body corporate debts and must be paid.
A definition of “reasonable” is still forthcoming. These amounts can accumulate quickly and will differ widely depending on what firms the body corporate uses.
It is possible to argue costs charged and there are a number of Adjudicators Orders on the matter. Arguing costs charged are unreasonable may be a viable strategy to get some remitted but be prepared to have the majority found due and payable.
The Implications of Levies in Arrears
Levies in arrears are a problem for all body corporates. They affect:
- Cash flow – budgets are very precise and all funds are required
- Outlay of collection costs – initially these costs are paid by the body corporate further impacting on budgets
- State of harmony – no one likes carrying the load for someone else
Any one of these areas can spiral out of control.
- Levies in arrears can get so large they impact the body corporates ability to pay their bills as they fall due
- Collection costs can spiral out of control. For instance the recent judgement in Westpac Banking Corporation vs Body Corporate for The Wave CTS was in relation to over $200,000 in arrears, of which only a small portion was actually levies
- If your levies are in arrears you have no say in how the body corporate is run. You are effectively a “second class citizen”. At least until you clear the arrears.
How To Avoid Levies In Arrears
When you buy a lot in a body corporate is Queensland a section 206 disclosure statement must mandatorily be included at the front of the contract. The idea here is before you even enter into the contract you’re made aware of what levies are currently payable.
Buyers need to take this information on board. Can you actually afford to pay that amount? On a regular basis?
If you have doubts maybe now is a good time to walk away.
Assuming you take the plunge and become a lot owner in a body corporate the best way to deal with levies is:
- Pay them when they fall due.
- If for any reason you haven’t paid your levies on time, pay them as soon as possible.
- If for any reason you haven’t paid your levies on time, and you’re not sure when you will have the funds to pay them, contact your body corporate and make a payment arrangement.
- If you have a payment arrangement in place, make the payments as they fall due.
There is no wiggle room in levies. They’re issued. They’re due. They need to be paid. The various costs and interest added to delinquent accounts will accumulate very quickly, and it’s only usually a short amount of time before the next instalment is due.
Your best bet will always be to stay on top of it.
photo credit: StockMonkeys.com via photopin cc
Unless stated otherwise all the information on this website relates to Queensland legislation.
Hi
There is no legislative provision in QLD for a 7 day grace period after the due date, levies are to be received on or before the due date to take advantage of the discount. The report above gives people the impression that there is an automatic 7 day grace period, this is not the case, some bodies corporate may endorse this however there are many that do not and stick to the requirements of the legislation.
Thanks for the clarification Sue. I appreciate it.
Is interest charged by the BC on overdue levies taxable to the BC or is it considered mutual income same as normal levies?
Hi Mark
That is an excellent question. Shame I don’t know the answer. You will need to speak with a tax accountant.
Hi Mark
Having said I don’t know the answer unexpectedly an answer popped up. I just read the financial statements for a scheme and they have penalty interest listed as mutual income.
Hi Lisa
We fell behind with our BCFee for for 2 quarters but have since paid everything back. We were charged 30% PA interest by our BC Manager or 2.5% per3 month. We paid in full before the last BC account came in but have not been credited for the months that were involved. Is 30% legal? How can we find out when or if this was brought in by our BC as they have not answered our emails or requests. What can we do now? Thank you for some advice.
Hi Michael
Bodies corporate may charge up to 30% pa is they pass an ordinary motion at general meeting. Since you’ve been charged it’s probably been done and yes they are allowed to charge it, and yes it is payable. Essentially by not paying you’ve left your neighbours to cover your share of costs. They object. That’s their way of saying it.
Interest is payable on contributions that are overdue by one full month. So if it was due 1/6 and you paid 30/6 it has not been overdue a month. On 1/7 however it has been. Interest will be payable for each month you were overdue.
It sounds like you didn’t factor the interest into your payments. Legislation does not allow you to simply not pay it. Bodies corporate are directed to allocate payments against the oldest amount showing on the levy statement. So if you paid the next instalment but have not paid the interest then the payment is allocated to the interest first leaving a balance owing on the levies.
To find out if a motion to charge was successfully passed you will need to review the general meeting minutes, possibly back to registration. The motion should be contained within. You may inspect documents by making an appointment with the manager and paying a small fee.
Hi Lisa
I am charged 30% PA interest by our BC Manager as a penalty for 3 month late payment of my levy. Our yearly levy is $1916 and is paid in two instalments of $958 every 6 months. Based on 30% rate my penalties /year accounting department charge me $24.20 /months of interest in first months however after 3 months instead of 3 x $24.20 BC demand a payment of $145.20 (5 x $24.20). If I was late with my payment of $958 for 3 months how the penalties of $145.20 was calculated if 30% of $958 = $287.40 for a whole year.
Hi Janina
The 30% interest is only the cost of interest.
The body corporate manager charges a fee to the body corporate to chase up overdue levies. Each time they send you a letter there is a cost attached. You will be charged those costs as well.
I suggest you pay the levy before it gets to legal action or things are going to get very expensive. Solicitors charge a fortune to send letters and any reasonable costs incurred may be passed onto the lot owner since it’s only because you haven’t paid that the action is necessary.
Thank you for a prompt response. I just would like to clarify.
We had a self-manage Body Corporate however we decided last year to employ professionals. The Strata send me a bill $958 to pay by October 2016 which I did then Strata apparently send a new bill within 3 months for another $958. Unfortunately somehow we didn’t receive that bill or maybe went to a junk mail and we overlook because it was not expected if I pay my bill every 6 months nevertheless Strata send me a reminder in February for $982 with no bill attached. I didn’t understand way this one is greater than my first one plus without a DEFT how I should pay? Eventually in March we received proper bill with 2 lots of penalties. This was a time when I expected my next 6 months regular bill. We contacted immediately Strata to clarify way. We find out that apparently a bill was send to me in December 2016.
Like I mention we are new into the whole rules and regulations so sometime without proper explanation and a bill attached it’s bit difficult to understand. Just before we employ Strata we decided to double our levy therefore when Strata ask next payment within 3 months it was like 4x more that we normally pay which is bit devastating if you are unprepared.
I paid that levy long time ago however at the moment it’s a matter of price for penalties because this penalty charge is cumulative interest charge instead of interest.
I always pay my bills on time but it is very difficult to pay you bill if you don’t know you have a bill to pay.
Hi Janina
Check your last AGM minutes to see what the approved budget and contributions were. It is possible that the body corporate has issued incorrectly.
The extra $24 seems like a cost for the overdue letter. Ask for a statement from the strata manager – it should have all the costs added itemised.
What can I do at my next AGM about the following.
There are 5 lot owners.
1 lot owner has the proxy of 3 of the other lot owners.
Only myself and the 1 lot owner with the other lot owners proxy’s attend the AGM.
The 1 lot owner with the other proxy’s vote, awards themselves the contracts to clean the grounds and maintain the grounds and gardens.
The 1 lot owner is in charge of the body corporate.
The same 1 lot owner has the lowest Strata Fee’s of all of the Lot Owners.
By far.
What can I do at the AGM on 8 December 2017
Hi Chris
Refer to this article. This assumes you are in QLD and talking about QLD legislation.
For schemes with less than 20 lots one person may only hold one proxy.
Proxy votes are excluded in any motion to appoint a service contractor.
Strata levies should be issued at the same rate to all lot owners. Strata levies should be calculated by contribution lot entitlement. The lot entitlements may be different but then there should be an explanation as to why in the body corporate community management statement.
Given all that it appears that this person might be up to something that they shouldn’t. How do you stop it? I suggest making an application for Adjudication with Office Commissioner Body Corporate to have the appointment of contractor overturned.
At the AGM you may let the person know that they may not vote they way they are. If as you say, they’re still holding proxies, and insist on acting that way, again, make an Adjudication application to overturn any motion passed as its not in accordance with legislation.
I have been advised by email from the secretary/treasurer of the existence of unpaid levies from 2013/2014 and i have not received any prior notification in writing from the body corporate such as a reminder notice. From my recollection the body corporate fees have been paid although my bank statements were hard copies back in those days and lost. it is possible that the fees have not been paid and entirely possible the fees have been paid. the body corporate has passed ordinary resolutions every year to “not conduct an audit”. verbal communication with the secretary/treasurer has deteriorated over a number of BC issues and poor communication that occurs spuriously once a year around the time of the AGM
1.) is there a maximum time frame that expires before a body corporate forfeits its right to collect levies in arrears? (2years and 2 months, or 6 years)
2.) do i have the right to request an audit or other evidence to avoid a situation of paying twice for the same invoices?
3.) assuming the levies are unpaid…..if the body corporate has failed to communicate in writing the existence of debt from unpaid levies and is failing identity the specific invoices that are unpaid , am i really responsible for the (assumed debt) considering i dont have a reference to an invoice to pay?
Hi Michael
Yeas there is a maximum time frame that the body corporate must seek payment of the fees. I’m not totally sure but think its 2 years. I also think there was a case recently where the body corporate was not allowed to pursue the amounts after the two year window had expired with no action. This is a legal matter and you should talk to a Solicitor.
Any auditing should be done of your own records. Ideally you can show you’ve paid the invoices.
Talk with Office Commissioner Body Corporate first if you want to find out if you have a case. If the body corporate cannot show which invoices are owing then it sounds like you might have a case and depending on the size of the debt getting legal advice may be cheaper than paying.
Hi Lisa,
Do you know if a Body Corporate has a legal right to actually evict an owner from their Unit, either:
a) just because of unpaid BC fees; or
b) any other reason?
Have you ever heard of a Unit owner being evicted for non-payment of fees?
Would such a provision be included in a BC rules?
I am particularly referring to Body Corporates in Victoria, and the BC in question has around 6 Units.
Many thanks,
Noel
Hi Noel
In QLD the body corporate cannot evict someone from a lot. The body corporate has no control over what happens with or in the lot, only the owner does. If I don’t pay my rates the Council can’t evict me from my home. Its my home. Its the same with bodies corporate.
Someone just asked me if the body corporate can stop the owner from renting out the unit if there are outstanding debts. They can’t do that either. The body corporate cannot limit the use of the property for unpaid contributions. They have no jurisdiction over what happens with the lot.
A body corporate is an unsecured creditor. They have the same rights as any unsecured creditor when it comes to collection of monies owed. Legal action, and, if they force the sale to repay the debt, they need to get in line behind the secured creditors ie Mortgagee. That’s why bodies corporate will often take legal action to recover debts (legislation requires them to anyway) but stop short of forcing the sale. If they leave it to other creditors the property will eventually be seized, and hopefully levies paid then. If not paid then any buyer usually forces the levies to be cleared as part of the sales contract. In this way the body corporate can, hopefully, get paid in full, rather than claiming cents in the dollar from whats left over after the bank has had their way.
Hi Lisa
We have had an issue with our strata company (WA) applying paid levies against other disputed amounts. Then they use the unpaid amounts to charge interest and collection letter charges. We have requested that they apply the amounts paid against the levies but they refuse. Because of this their system can put in invoices for other amounts (for instance parking bay licences which they cannot charge interest on) before the levy due dates and then it triggers unpaid notice and interest even though the levies where paid. Can they charge interest on other general charges that are disputed? Can they charge interest on interest or on collection letter charges? Or is it only on the levies? Because they take up the levies paid against other non interest charges it leaves a balance outstanding on levies which they say they are entitled to charge interest on. They continue to do it and when we explain they don’t care. The other question is that the agenda for the AGM came out with a suggested schedule of rate. Most people could not make the AGM and some had not received the notification, even though they were chasing up the strata company. The rates were then changed, and a new schedule of rates was sent but the strata company has not kept to that schedule and as a consequence to make up for it have raised two quarters of the rates which are very high. Can they do this? Also, there was only one owner at the meeting but she used her vote and three proxies to continue the meeting and put the rates in place. How is this possible? We have asked for an explanation but they refuse to provide one.
Hi Rose
I’m not familiar with WA strata legislation so my comments will be per QLD strata legislation. You’ll need to follow up differences.
Interest is only chargeable on outstanding contributions. Its simple interest per calendar month. So the amounts need to be overdue by one month before interest can be charged and then another month before interest can be charged again.
Reasonable collection costs can be added. Payments should be allocated against the oldest charge on the account, notwithstanding it may be a cost or interest. I suggest you pay the amount owing and then seek some form of Adjudication, whatever you have in WA, to dispute the charges and seek a refund. By clearing the account you stop any additional amounts being added other than the agreed contributions.
If an AGM is called owners would presumably been issued a voting paper. If you didn’t agree to the strata levies then you should have voted NO. Yes one person attending the meeting can, in some circumstances control the voting. If others don’t bother to vote at all they’ve not indicated their preference. This person did vote and she voted yes so she carried the vote. This is a result of owner apathy and you simply need to wear it. Be more involved next time.
Hi
We are overdue on our levies. By 2 quarters. We also have a small amount over as well I think has added up from interest and arrears letters costs that we were unaware of. We have been this overdue before without action as we always pay and don’t mind paying interest. Sometimes work is down and can’t pay but we always catchup. It is not often.
The issue we have is that we knew we were overdue, but didn’t realise how far. We have received NO arrears letters but just got a letter of demand from the layers. Our BC has 3 arrears letters that are supposed to be sent prior. We have been charged for these letters some at $77!
But we never received them not by post or email. But we received the layers letter and email and always get the BC managers letters about kids playing on the street ect.
What can I do about this? I have the money to pay but think it’s unfair to have to pay almost $500 in fees for letters I didn’t receive and if I had received them I would not have let it go to the lawyers. I would have entered into a payment plan short term like I have previously done.
I am calling them tomorrow but fear they will just say we sent them too bad. I don’t believe they have. Can I ask for proof? In businesses I have been involved in previously we were required to send our arrears letters via registered mail and keep receipts for 3 years in case of something like this.
Hi Andrew
It sounds much like your strategy for paying levies is to be behind and pay when collection gets too high. It also sounds like your body corporate is sick of the behaviour.
The body corporate should follow their published collection procedure, although it can be amended easily enough. Whether they have to send letters via registered mail will be part of the overall procedure. Its unlikely because its additional cost, but you’d need to refer to the procedure, if there is one.
Hi there
In Victoria can you opt to pay your body corporate fees in monthly instalments without interest being charged. There are 10 units in our block. I always pay any special Levy’s upfront. Thanks Karen
Gooday. If ur levy is in arrears can the body corparate refuse to have u build onto the property.
Hi Yvette
There is not enough information to reply to your query. If your levies are in arrears you cannot vote at meetings or be on committee.
The body corporate can refuse to let you build onto the property at any time. Changes are strictly controlled in most schemes via a combination of legislation and by-laws.
I’d need to know more about the circumstances to be able to tell you if anything that is being said / done is in accordance with legislation.