VIC: Financial hardship reform: Protecting vulnerable owners or creating new risks for owners corporations

For years, the conversation around unpaid levies has been framed as a simple debt recovery issue. Owners Corporations levy fees, lot owners fail to pay, and recovery action follows. In practice, that approach has often prioritised enforcement over engagement, with recovery processes becoming entrenched before genuine attempts are made to understand the circumstances of the owner in arrears.

The Victorian Government’s response to the statutory review of the Owners Corporations Act 2006 (Vic) seeks to change that narrative.

Among the most significant reforms proposed are the introduction of a legislative financial hardship framework, restrictions on debt recovery while hardship applications are being assessed, mandatory consideration of payment plans, and limitations on the charging of penalty interest in certain circumstances.

At first glance, these reforms appear difficult to criticise. Few would disagree that genuine financial hardship should be recognised and accommodated. Many Owners Corporations have already adopted pragmatic approaches when dealing with owners experiencing illness, unemployment, family violence, or other significant personal circumstances.

The question is not whether hardship should be recognised. The question is whether the proposed framework appropriately balances the interests of vulnerable owners against the financial realities faced by Owners Corporations themselves.

An Owners Corporation is not a government agency. It does not have access to public funding. It is a collective financial structure in which all obligations are met through contributions from lot owners. Every dollar that is not collected must ultimately be funded by other lot owners.

This is particularly significant in the current environment. Insurance premiums continue to rise. Utility costs have increased dramatically. Building compliance obligations are becoming more extensive. Many Owners Corporations are also confronting substantial rectification costs associated with ageing infrastructure, combustible cladding, water ingress and other building defects. With a growing proportion of Victorians now living in strata environments, both the scale of these pressures and the financial stakes involved are increasing.

Against that backdrop, delayed levy recovery does not simply create an administrative inconvenience. It creates a cash flow problem that can affect an Owners Corporation’s ability to meet its own obligations.

The Expert Panel has clearly recognised concerns regarding aggressive debt recovery practices. However, there remains a legitimate question as to whether the proposed reforms risk shifting financial hardship from one owner to many others.

A prolonged suspension of recovery action may provide relief to an individual owner, but it can also leave an Owners Corporation unable to recover funds required to pay insurance premiums, contractors and maintenance costs. In smaller schemes operating with limited financial buffers and fewer contributors, the impact can be immediate and severe.

Another issue is the potential for inconsistency. Approaches to hardship already vary significantly across the sector, and without clear standards a formal framework may entrench rather than resolve that variability.

The success of any hardship framework will depend heavily on how hardship is defined, assessed and reviewed. If the threshold is too low, Owners Corporations may struggle to recover legitimate debts. If the threshold is too high, the reforms may fail to provide meaningful protection for those they are intended to assist. The framework will also need to account for the practical question as to who is best placed to assess hardship, given that many Owners Corporations lack the expertise and resources to make complex financial or personal assessments.

These design challenges become even more acute when considering who the framework is intended to protect. Questions have been raised as to whether access to payment plans should extend to all lot owners or be limited to owner‑occupiers. On one view, financial hardship is not confined to any one class of ownership, and a uniform framework promotes consistency and fairness. On another, hardship protections should be directed primarily toward owners where there is a genuine risk of displacement from a principal place of residence.

Where a lot is used as an income‑producing investment, deferral of levies may operate less as a social protection and more as a reallocation of financial risk to other owners. Consideration of mechanisms that prioritise the payment of Owners Corporation fees from rental income streams may provide a more balanced response, aligning financial responsibility with the benefits derived from the asset.

That same principle extends to the design of any broader hardship framework. Rather than adopting prescriptive controls, the focus should be on ensuring that relief is structured, proportionate and difficult to exploit. This may, in practice, require limits around duration and repeat access, and a clear expectation that lot owners take responsibility for initiating and substantiating claims of hardship. Measures that preserve accountability, whether through conditional access to facilities or other incentives to engage, are not punitive, but necessary to ensure the system operates fairly across the scheme as a whole.

Ultimately, Corporations operate on a fixed, collective budget. Any regime that defers or reduces contributions must therefore be carefully calibrated. Prioritising support for owner‑occupiers most at risk, confining relief to defined periods, and retaining the ability to refuse arrangements that would materially undermine the scheme’s financial position are all mechanisms that help ensure hardship protections remain workable in practice. Without such guardrails, there is a real risk that well‑intentioned reforms will shift, rather than solve, financial stress.

The Government’s response provides broad support for hardship protections, but many of the practical details remain unclear. Questions surrounding evidentiary requirements, review mechanisms, timeframes and dispute resolution processes will ultimately determine whether the framework succeeds or creates additional conflict.

There is also a broader policy question. If financial hardship protections are to become a central feature of Owners Corporation governance, should government also consider mechanisms to support schemes that experience significant levy shortfalls as a result? At present, there is no clear indication that any external funding or risk-sharing mechanism will be introduced, meaning the financial burden appears likely to remain entirely with fellow lot owners.

The challenge for policymakers is therefore not whether hardship should be recognised. It is how to ensure that hardship protections do not unintentionally undermine the financial sustainability of the communities they are designed to protect.

As consultation continues and legislation is developed, the real test will be whether Victoria can strike a balance between compassion and practicality.

Everyone agrees vulnerable owners deserve protection. The harder question is who ultimately pays for that protection.

This post appears in Strata News #808.

Julia Moroz
Bugden Allen
E: julia@bagl.com.au
P: 03 8582 8100