Question: Due to a lack of management, our OC has neglected to collect levies. Can they be fined for not enforcing strata fees?
The owners corporation did not renew our strata management contract due to the cost of the service. This has caused us to fall behind in our levy collections and therefore, our capital works funds. Can the OC be fined for not enforcing the collection of levies?
To catch up, each owner needs to pay over $2000. Some owners wishing to sell are concerned they will be liable due to our low capital works fund account.
Answer: An owners corporation cannot be fined for failing to collect levies from owners. However, there are other serious consequences of failing to do so.
An owners corporation cannot be fined for failing to collect levies from owners.
However, there are other serious consequences of failing to do so. For the most part, the owners corporation will become dysfunctional and this can lead to the (compulsory appointment of a strata managing agent which is another topic, but in summary, very costly for the owners and takes away their ability to make decisions for themselves).
Over time, the owners corporation will run out of funds to pay its suppliers (services such as water, energy, cleaning, repairs etc.), effectively making it insolvent.
Eventually, the owners corporation will fail to be able to undertake repairs or maintenance of its common property under its strict duties under section 106 of the Strata Schemes Management Act. This will devalue the property overall.
An owners corporation cannot legally commit to works if it has insufficient funds to do so. In other words, if one knowingly doesn’t have the money to pay for a job, it’s considered to be fraud if they proceed to engage a tradesperson regardless.
Owners might choose not to pay levies now but that won’t stop the obligations. It won’t stop the building from deteriorating. Failing to pay those levies now just “kicks the can down the road” – the problem doesn’t disappear.
Furthermore, repair and maintenance become more expensive the longer it is left. Take concrete spalling as an example – the longer it is left to fester, the more it grows, and the more damage occurs.
If owners do plan to sell, imagine what prospective purchasers will think when they look at the records and see that there are debts on not only their lot but others as well. Prospective purchasers will see low funds in the capital works fund and compare them against the ten-year capital works fund plan and see red flags (i.e. special levies in the future).
So, in summary, the owners corporation needs to look to its future and all of the ramifications that will inevitably come from its decisions today. This is why owners corporations are required to have capital works funds – to set aside funds for those expected and unexpected major works that will eventually come.
An owners corporation decides on its levies by resolution at its annual general meeting. Once that decision is made, the levies are “struck”, meaning they must be paid. The only way to undo that is to hold another general meeting and pass another resolution, either amending the levies or cancelling future levies. An owner or a strata committee cannot simply decide to ignore levies. When owners do sell, the owners corporation will be asked to produce a strata information certificate (also known as a section 184 certificate) disclosing any overdue levies. This will be factored into the settlement process as well, and most purchasers would demand that the sale price be decreased by the equivalent amount of any outstanding levies (or demand that the vendor pays them prior to settlement).
This post appears in the July 2022 edition of The NSW Strata Magazine.
Tim Sara
Strata Choice
E: tsara@stratachoice.com.au
P: 1300 322 213
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