NSW: Can strata managers apply payments to interest first and charge further interest on levy shortfalls?

Question: Can a strata manager deduct overdue interest from levy payments and then charge further interest on the resulting shortfall?

We paid our strata levies on 21 February 2025 for administration and capital works in accordance with a quarterly levy notice issued in December 2024. The payment was late, as it was due on 1 January. The strata manager deducted the overdue interest of $17.61 from the capital works levy, leaving that fund in arrears. They stated their system “automatically puts the monies against the interest”.

The March levy notice recorded the shortfall of $17.61 in the capital works levy as overdue since 1 January, and applied additional interest of $0.05, making the total $17.66. Is this practice permitted?

Answer: Strata management accounting systems allocate payments to the oldest debt first.

The majority of strata management accounting systems allocate payments to the oldest debt first, without differentiating between interest or levy contributions. Section 85(2) of the Strata Schemes Management Act 2015 (SSMA) states “A contribution, if not paid when it becomes due and payable, bears until paid simple interest at an annual rate of 10% or, if the regulations provide for another rate, that other rate.”

Further, Section 86 of SSMA does not differentiate between contributions and interest with debt recovery. They are viewed as one under legislation. The $0.05 interest in question would have been charged by the owners corporation if the levy was paid $17.61 short, or if only the interest of $17.61 remained unpaid. The strata manager does not receive any benefit from the interest charged on overdue levies. The interest is charged by and credited to the owners corporation.

While owners can dictate which amounts their payment is to be allocated to, it is always advisable to pay off the oldest amounts owing first. If levy payments are made on or before the due date, owners won’t be liable for any interest or debt collection costs.

This post appears in the October 2025 edition of The NSW Strata Magazine.

Nathan Clarke
Hunter Strata Management
E: nathanclarke@hunterstrata.net.au
P: 02 4934 2022