This article emphasises the critical importance of timely body corporate levy payments for financial stability and common property maintenance, outlining the consequences of non-payment and available dispute resolution avenues.
Ensuring body corporate levies are paid on time is an important aspect of community living. The payment of levies allows all owners and occupiers to enjoy and use well maintained common property and have money available to pay contractors and insurance. Sufficient levies allows all owners peace of mind that when expenditure by the body corporate is needed, there are enough funds to complete the work without the need to dip into their pockets all the time to top up the funds.
This article covers the importance of paying levies, as well as what could happen if lot owners do not pay. It also provides information about the potential disputes that could be resolved through our office in relation to body corporate levies.
We are often asked “is that a body corporate responsibility?” when speaking with clients about who should be paying for something. Sometimes there is a misunderstanding of what the body corporate is. The body corporate is not a mythical entity with a magical money tree out the back. Instead, it is all lot owners who are responsible for contributing their share towards common expenses, such as the maintenance of common property and insurance. All owners need to pay their levies on time to ensure the body corporate has the money it needs when it is needed.
Preparing the budgets
The body corporate needs to prepare a budget each financial year to cover expenses that might reasonably be expected to occur. The body corporate must maintain an administrative fund, and a sinking fund. The administrative fund is used for the day-to-day, recurrent expenses of the body corporate, such as paying for the common property lawns to be mowed. The sinking fund is used for expenses of a capital or non-recurrent nature, such as painting buildings or resurfacing the common property driveway. As part of managing and planning for these funds, the body corporate should obtain a forecast. This is a plan that looks ahead for the current and next 9 financial years and forecasts spending the body corporate is likely to need. The forecast helps the body corporate prepare budgets to manage and collect enough levies to meet those anticipated expenditures, without having to raise a special levy.
Special levies
If there are inadequate funds to cover particular expenses the body corporate will have to raise a special levy. Special levies should only be used as a back-up plan for bodies corporate — not be relied upon repeatedly. In some situations, where there is a shortfall of funds, the body corporate could consider going back to a general meeting to adjust the budget so that some expenses have more money allocated towards them to cover shortages; however, this is not a long-term fix for inadequate budgets.
When some owners don’t pay levies, the body corporate may have to raise a higher special levy so that the owners who do pay cover those that don’t. This can create unnecessary tension due to inequity amongst owners.
Sometimes special levies are still required even if a body corporate collects levies and maintains a good budget. For further information around special contributions, refer to our webpage owner’s contributions.
Reducing levies
With the rising cost of living, the squeeze on wallets is felt by everyone. It may seem appealing for bodies corporate to reduce levies to give owners extra savings but if the budgets are not managed effectively, there may be long-term consequences on the financial health of a body corporate. Not enough funds could mean a delay in an important decision being made by the body corporate. If the body corporate is required to make a large expenditure and there is either no provision or inadequate provision in the budget a special levy may be needed resulting in a general meeting being called. Calling a general meeting will add further expense to a body corporate which will be passed on to owners through their levies.
Therefore, while reducing levies may provide short-term savings, it’s essential for bodies corporate to maintain a long-term view, ensuring that adequate funds are budgeted for ongoing maintenance and emergency expenses. A well-managed budget with a healthy sinking fund can help avoid the need for special contributions, minimising financial surprises for owners.
Contribution notices
The body corporate must notify lot owners when a contribution for a levy is due by sending a notice of a contribution at least 30 days before the payment, contribution or instalment of a contribution is due. The notice needs to be in writing and must contain specific information as outlined in section 163 of the Standard Module.
An owner needs to let the body corporate know how they would like to receive the notice. If an owner has not advised the body corporate how to send the notice it must be sent by mail to the owner’s address for service as recorded on the body corporate roll. If an email address has been supplied to the body corporate, the lot owner is taken to have consented to receiving notices from the body corporate, through that email (section 216 of the Standard Module). Ensuring that the correct and most up to date address for service is supplied to the body corporate, is the responsibility of the lot owner.
If a lot owner needs to update the body corporate roll, to change or amend their address for service, the legislation provides that notice of this update for the roll, goes to the body corporate, not the body corporate manager. Once a lot owner has produced updated details to the body corporate, the body corporate has 14 days to update the address for service in the roll (section 225 of the Standard Module).
What happens when an owner does not pay their levies?
Sometimes owners may find it difficult to keep up to date with their levies due to circumstances beyond their control. If that is the case you should speak to your committee and let them know.
Some owners decide to withhold levies purposefully to force the body corporate to follow through on motions. For example, if you believe the body corporate is required to undertake a specific maintenance task, withholding levies is an unlawful way to force the body corporate to act. The effect of this is that the lot now owes a body corporate debt and loses the ability to vote on general meeting motions.
Penalties
The body corporate may decide to impose a penalty on overdue levies at a general meeting by passing a motion by ordinary resolution. The penalty itself must be calculated using a simple interest rate of not more than 2.5% for each month a contribution, or portion of a contribution, is due.
Discounts on contributions
The body corporate can also decide to apply a discount for early contributions by passing a motion by ordinary resolution at a general meeting (section 164 of the Standard Module). The discount cannot be more than 20% of the amount to be paid. This allows a lot owner to benefit from being proactive in paying contributions and avoid unnecessary stress. At the body corporate level, this incentive to pay levies on time ensures that money is available when it is needed and the body corporate can function smoothly.
Debt recovery
If a contribution is not paid to the body corporate on time, it could prompt the body corporate to start a debt recovery process against the owner of the lot. The legislation provides that a body corporate, must start a debt recovery process after 2 years of a debt being outstanding. However, there is nothing stopping the body corporate from deciding to start that process earlier (section 166 of the Standard Module).
This means if a levy is not paid, not only can the body corporate recover the contribution or portion of the contribution, if not received by the due date, but additionally a penalty for the late payment. Reasonable recovery costs can also be recovered from the owner of the lot who owes a body corporate debt.
Disentitlement to vote
An important and defining aspect of being a lot owner is the ability to vote. If at the time of a general meeting, a lot owner has an outstanding contribution, they lose the ability to exercise a vote for that lot. This means that a lot that has an outstanding contribution cannot participate in important decisions for the body corporate to vote on. This could include decisions around further expenditure required of the body corporate. However, the exception to this, is that an owner who has an outstanding debt can vote, when deciding a motion that requires resolution without dissent (section 102 of the Standard Module).
Committee membership and voting
When an owner owes a body corporate debt at the time committee nominations are due, they are unable to nominate or be nominated for the committee. If they remain in debt at the time of the body corporate committee election, they are also unable to be elected.
Committee members who owe a body corporate debt after they become a committee member are unable to vote on committee decisions. This may have a negative impact on owners if there are not enough committee members available to make decisions.
Dispute resolution
While our office provides dispute resolution services to people working and living in bodies corporate, the office is limited in what debt disputes can be considered. An adjudicator does not have jurisdiction to determine a debt dispute. However, some matters can be conciliated if proceedings have not already commenced in another court or tribunal.
Practice Direction 24 – Debt disputes, provides more information about disputes of this nature.
Disputing decisions about debts
Disputes about money owed can arise from a lack of communication, which may result in the need to have the issue resolved through our office. Disputes about the payments of levies through our office could stem from an error in the notice given, due dates for payments, amounts required to be paid, or even from something as simple as an incorrect or outdated address for service.
Some owners believe that withholding payment of levies is a way to force the body corporate to follow through on motions. For example, if you believe the body corporate is required to undertake a specific maintenance task, withholding levies is in unlawful way to force the body corporate to act. The effect of this is that the lot now owes a body corporate debt and suffers the consequences as outlined earlier.
If a lot owner makes a payment towards an overdue contribution, they should be aware that there is an order to the way the payment is applied to the outstanding debt. If the body corporate has applied a penalty against an overdue contribution, any payment from a lot owner towards the total amount, is applied against the penalty first.
The order in which payment for overdue contributions are applied is as follows:
- first, towards the penalty; and
- second, in reduction of the outstanding contribution or instalment; and
- third, towards any recovery costs for the debt.
Special circumstances
If there are special circumstances to why you can’t pay your levies you can ask the body corporate to waive penalties, debt recovery costs, and reinstate discounts. The body corporate and committee are required to act reasonably in anything they do, including making or not making a decision and that includes your request for them to consider waiving these additional costs relating to your debt.
If a lot owner believes that a committee has acted unreasonably in deciding, refusing or ignoring their motion to waive penalties, or the liability for recovery costs, they may be able to dispute that decision through our office. Having an outstanding debt does not prohibit an owner from submitting motions to either committee or general meetings. The onus is on the applicant to demonstrate:
- How they have attempted to resolve the dispute before applying for dispute resolution (self-resolution).
- How the body corporate has acted unreasonably, just voting no is not of itself an unreasonable decision.
Case Study – The Reserve [2015] QBCCMCmr 353 (28 July 2015)
An application lodged in early 2015 was dismissed by an adjudicator ruling that a committee decision to not to reinstate a disallowed discount, and to reimburse the applicant was not unreasonable.
The applicant was seeking a reimbursement of $509.89 which was the amount of a disallowed discount. Payment of the levy was due on 5 December 2013. The levy was paid on 23 December 2013. The applicant argued that the late nature of the payment of levies was due to an unexpected death in the family. The applicant requested twice in 2014 that the committee reinstate the disallowed discount, twice the committee voted no.
The evidence provided in the application was not provided to the committee at the time of their decisions. Additionally, the body corporate may choose to reinstate the discount for special reasons, the committee decided that given the circumstances and evidence provided to them, there were not special reasons and as such voted no, on both occasions.
Our office resolves disputes through conciliation and adjudication. We publish the outcome of all adjudication online through the Australasian Legal Information Institute (Austlii) website. Previous adjudicators orders are not precedents. Each order is made based on the evidence provided for in each application. However, referring to previous orders can be an effective way to see how the legislation has been interpreted and applied to previous situations.
Levies being paid on time benefits both owners and bodies corporate and ensures the day to day running of the body corporate goes smoothly.
Information Service Freecall 1800 060 119
Commissioner for Body Corporate and Community Management
This post appears in Strata News #748.
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This article has been republished with permission from the author and first appeared in the BCCM Common Ground newsletter.
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