VIC lot owners would like to know if non essential contract work can be suspended and Owners Corporation fees be reduced during the Coronavirus crisis. Chris Irons, Hynes Legal and Joel Chamberlain, Horizon Strata provide the following responses.
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- QUESTION: Will owners corporations in Victoria lower their fees during the coronavirus crisis?
- QUESTION: Are Owners Corporations able to suspend non essential contracts and reduce strata levies to help get us through this terrible coronavirus crisis?
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Question: Will Owners Corporations in Victoria lower strata levies during the coronavirus crisis?
Answer: As we go to print, neither the law nor government announcements, offer you a suitable remedy.
Great question. One that will have to be addressed by many Owners Corporations in these turbulent times. As we go to print, neither the law nor government announcements, offer you a suitable remedy.
Owners Corporations are empowered to levy fees to fund their budgets, chase arrears, add penalty interest, etc. Fees and budgets will have been approved at your last Annual General Meeting. So, it will prove problematic for the Owners Corporation to simply lower fees without formulating and having those approved reduced fees.
If we believe the authorities, unemployment could reach more than 15% as a result of the coronavirus restrictions. For an Owners Corporation, this can mean 15% of their budgets becoming unfunded. It is serious.
Whether you are an owner-occupier or a landlord, Owner’s Corporation fees are just another cost to be met along with food, mortgages, electricity, etc. Owners Corporations will be aware that fees will rank below those other costs, in people’s priorities. They know that practically it can take a very long time to enforce collection. They need to listen to people enduring financial stress and react in a diligent but practical manner.
Your best option is to communicate early with your Owners Corporation and explain your situation. You will not be alone. Others will be experiencing the same problem. The earlier you deal with this, the quicker the Owners Corporations will be able to plan.
There can be a number of actions they can make to address short term cash flow problems ranging from levy deferrals, trimming costs, Maintenance Plan adjustment, borrowing, etc. Most importantly, make sure you and your family are safe.
Joel Chamberlain
E: [email protected]
P: 03 9687 7788
W: Horizon Strata
This post appears in Strata News #333.
Question: Are Owners Corporations able to suspend non essential contracts and reduce strata levies to help get us through this terrible coronavirus crisis?
Are Owners Corporations able to suspend non essential contracts and reduce strata levies to help get us through this terrible coronavirus crisis?
Has there been any effort by Strata Management Corporations or the Governments to look at reducing the cost of strata levies?
I ask this for two reasons:
- Owners and tenants may lose jobs and will be unable to cover mortgages and Strata fees
- Contractors and residents will be required to work in areas outside their safe zones and may pass on or get the COVID-19 virus.
Banks are willing to suspend/adjust mortgages, but nothing has been discussed to help apartment owners.
It must be said that councils need to step up in this area as well.
Remove all non essential services such as services scheduled to passenger lifts, car stackers, non fire doors, electrical services and plumbing services.
Essential services on all fire equipment would need to continue to comply with Australian standards.
All these non essential services account for 70% of Strata fees and will enable residents to get lower corporate fees if these contracts are reduced to only call outs or breakdowns.
Strata Management Corporation should also assist by reducing their fees by at least 50% because their workload would also be reduced substantially.
Everyone has to give a little to get through and Strata, contractors and investors must not be exempt.
Has there been any discussion in this area since this terrible Coronavirus has shut down the world?
Answer: Decisions cannot be arbitrarily made to cease doing something without that first having been put to a vote.
You raise some very valid and timely points. There’s been a lot of discussion in the media about impacts of COVID-19 on the property market generally and then other reports about things such as open houses, auctions and impacts on tenants.
It’s important to remember that things happen in body corporate – or strata, or owners’ corporation, depending on where you are – jointly. In other words, decisions cannot be arbitrarily made to cease doing something without that first having been put to a vote or subject to an order of an adjudicator, court or tribunal. That is how things get done. So in relation to your proposal to reduce services by a certain percentage, you are at liberty to put that proposal in the form of a motion to a meeting and have it voted upon. Equally, those entitled to vote are entitled to agree or disagree with it.
Body corporate levies are set according to the needs of the building and are used to maintain common property and pay for things like insurance and other outgoings. If you’re suggesting fees should be halved, that’s fine but you’d need to still have the money to pay for things. How do you make the distinction between what is ‘essential’ and ‘non-essential’ spending? Almost all body corporate expenses are necessary. Bodies corporate are parties to contracts and there are statutory obligations to do certain things. Imagine not serving the lift and it breaks down. Is that right?
Those things won’t necessarily change because of the pandemic. I’m sure your view of that would not be the same as everyone else’s in that building. To put it another way: if a body corporate had no expenses whatsoever, then the levies could stop as well. But that is not realistic.
I know from some of the client enquiries and discussions I’ve been having levies are becoming a pressing issue across Australia. My experience with strata managers is that they have all become busier dealing with these issues than not. No doubt more discussions on this will take place in the weeks ahead. You’ve got every right to put your concerns to your elected representatives – that is, after all, their role.
Chris Irons
Strata Adviser
E: [email protected]
P: 07 3193 0500
W: Hynes Legal
This post appears in Strata News #332.
Have a question about reducing strata levies during the Coronavirus crisis or something to add to the article? Leave a comment below.
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Hi Chris and Frank,
Are there any early indicators as to the ballpark percentage of lot owners in QLD that will not be able to pay their levies? Would it be something like 30%?
Our scheme of 57 lots does not have reserves in the Sinking Fund to fall back on as this is the scheme’s first year (commenced late November 2019) and has only collected 3 of the 4 levies. The last levy was due 1 April 2020 and we are unfortunately carrying arrears totaling 7% of the annual levy income.
Notwithstanding the COVID-19 crisis, the Admin Fund budget was insufficient from its inception which means we are on track for a deficit of approx. 14% (before we factor in COVID-19 non payment of levies.
The body corporate has not established a pay-on-time discount nor does it charge penalty interest so we cannot give relief to owners there.
We will be grateful for any advice/suggestions you can provide.
Hi Helen. I think it is important to consider whether relief should be provided for levies. If the expenses of the body corporate haven’t changed, any relief or reduction may only create a larger problem with the body corporate’s funding.
I think the solution here would be to encourage owners to contact the committee early if they think they will have any problems in meeting their levies – the committee can then negotiate reasonable payment plans to ease the burden on owners.
Debra Spence says:
“[…] …the future costs for not maintaining essential services will snowball. […]”
Too true, Debra. Like a $i$yphean ta$k on $teroid$. Everyone must keep their $houlder to the *weal* and ‘cough up’.
“Has there been any effort by Strata Management Corporations or the Governments to look at reducing the cost of strata levies?”
From the governments, there has been talk of freezing bank mortgage payments and rental relief for tenants (the two could potentially cancel each over out if you have a rental apartment) but I have seen nothing related to strata relief?
Caretaking and insurance costs are the two biggest costs for my properties in QLD – I’m hopeful they (State/Federal) are looking into it but I doubt it
Hi Paul. I think it is important to consider whether reductions should take place for levies. If the expenses of the body corporate haven’t changed, any relief or reduction may only create a larger problem with the body corporate’s funding.
Management rights agreements are fixed contracts so they are unlikely to change. It would be a gracious insurer to reduce their premium costs and I think it is unlikely the government will provide such further and specific assistance.
I think the key will be communicating with the committee to find a fair balance on making payment on some more flexible terms.
Hi Todd,
Yes but would’nt the body corporates have been eligible for Jobkeeper ?
We all know wages is a big factor in the levies our admin is $1800 per quarter which is rich
It’s been suggested that Owners and Owner Committees cut out discretionary spending, ie. don’t topdress the lawns this year, or wait an extra year to paint the building if it’s not urgent… just in case the funds are needed elsewhere.
It seems easier to find smaller amounts more regularly too, so try assisting Owners by allowing the payment of quarterly levies over the whole 3 months without penalty interest PROVIDED the levy is paid in full by the end of the quarter.
Unfortunately, unless insurance companies (which are a major cost to every strata company budget) immediately provide a rebate, there’s little rattle room in most budgets, particularly in WA after the past several years of market decline.
The opportunities are higher too, however. With more people working from home, plus fewer working people, perhaps community activities will flourish with edible gardens and practical projects , pooling of resources and care across generations, clean streets, kindly conversation and shared stories.
Wouldn’t that be nice?!!.
The job of the BCM and Community Corporation is to act, as a fiduciary, in the best interest of owners.
They should consider the financial position of owners and balance the timing and amount of funds the Corporation requires for necessary work in the upcoming period against the financial needs of the owners.
Sinking fund contributions, for example – the provision for non-recurrent expenditure might be suspended or even rebated to balance the recurrent requirements against the capacity of owners.
It would be unreasonable for BCMs or Corporations to fail to take this balance of the immediate needs of owners into account..
The Corporation must always act in the interest of owners and it would not be reasonable to proceed with setting the timing and amount if contributions without taking the recessionary environment into account.
Keep in mind that bodies corporate will still have statutory obligations to keep the common property in good condition – that obligation can’t be ignored
I find it difficult to understand why anyone could consider services like scheduled servicing of lifts, pool cleaning etc as not being essential servicing. It is a proven fact that the repair costs for essential servicing being deferred results in higher repair costs when the crisis is over.
“passenger lifts, car stackers, non fire doors, electrical services and plumbing services” are NOT non-essential services and must continue to ensure self-isolated occupants can safely enter and exit as necessary and not experience avoidable system breakdowns.
Owner queries and requests to the strata manager and faclities mamager are likely to increase rather than decrease workload of the strata manager and building manager.
No service provider “should” cut their fees or breach their contract even though a compassionate response would be appreciated.
Every one of them and each of their employees are also experiencing severe financial distress…expectations of them must be reasonable
Yes,
Totally agree….the future costs for not maintaining essential services will snowball.
Residents will leave.
Loss of tenancy.
Loss of income.
You must be seen as endeavouring to maintain the integrity of your complex which is the due diligence of all stakeholders involved in the day to day services of the complex.
Duty of Care says it all!
Do no foreseeable harm!
Thank you for your comment. Part of your response is correct, however, you have not looked at the other side.
Self funded Owner occupier building would best maintain all service, where as owners with tenets will not have an income if there tenets are out of work.
No income means, non payment of strata fees.
No Strata fees means the contractor can not be paid.
How long will they last with no money coming into their business.
Our apartment has only 35% owner occupiers and will only last a short time before we have no money. Who covers us from there on?
Please feel free to as your contractors to work for nothing for two to three months. They need to pay their staff.
One example I can quote, “is two owners with 5 apartments and our two commercial leases refuse to pay his fees for two quarters and as a consequence our fire servicing contractor walked because were unable to pay his contacted fees”.
In reverse – if we sacked them we would have been sued for breach of contract.
This will only get worse during this crisis.
I must also state that or Strata managers alway held over enough of our money to cover their fees every month.
We have a holiday let complex and at this time it is almost empty and forward bookings have been mainly cancelled. Is it reasonable to ask all major contractors to take a pay cut to help us through.
I include BCM, caretaker, pool maintenance people. Our electricity provider has said that there is nothing that they will do except give consideration to a deferred payment. There has been nothing from local Goverment except deferred payment, banks appear to be to be the same although they are going to capitalise interest which is no favour at all.
Would the committee approach each of the above and once agreement has been sought from contractors prepare another budget and take to owners? The budget for the coming year was prepared in Feb and is being voted on today.
Response from Chris Irons, Hynes Legal:
Thanks for your comment Janice. Remember that the key component of the title ‘contractor’ is ‘contract’ – in other words, someone has a contract and there’s an expectation of being paid for the terms of it. If you’re thinking of not doing so, you’d need to seek legal advice about that, as there may be implications you need to be aware of.
In terms of budgets, in Queensland – may be different elsewhere – the budget is presented to the Annual General Meeting to vote upon and this, in turn, defines each owner’s levies payable. The budget needs to account for all the body corporate’s anticipated expenses. Generally speaking you can’t amend a motion on the floor of the meeting, so if the budget passes today as per your comment and then the financial position changes later, an Extraordinary General Meeting would need to be called to consider a revised budget.
In my experience as professional service provider during the last recession and in many other economic downturns, my clients were not backward in letting me know that I was expected to shoulder part of the burden. It wasn’t consistent with our professional relationship to demand the same fee as in the past while everyone else was suffering a cut. The BCM should be on the front foot and demonstrate that they understand the meaning of the word recession without being asked by the client first. And yo make the same point to contractors that they engage for the Corporation:. Its pretty basic if you want to maintain goodwill and a trusted working relationship.
The circumstances with which we are confronted change day by day … I can only hope that some of the comments above were offered a while ago without an appreciation of how bad things have become – there are long long lines outside of Centrelink and shoos and offices in darkness.