Question: Can an owners corporation seek reimbursement from a negligent strata manager for legal fees waived due to the strata manager’s levy administration error?
One unit holders was not charged strata levies for the first 12 months of ownership. When discovered by our strata manager, the owner entered into a payment arrangement, which they have maintained. However, the owner failed to pay new levies as they fell due. If the owner continues with the current payment arrangement, it will take at least 18 months to catch up.
The owners corporation commenced legal proceedings to recover the outstanding levies. In response, the owner lodged a complaint with VCAT to dispute legal costs. This situation only occurred because the strata managers failed to issue levy notices when ownership was transferred to the new owner. If the committee agrees to waive the legal costs, can we request reimbursement of the legal fees from the strata manager?
Answer: If there has been a breach of the manager’s duties, it may expose them to liability for loss or damage caused to the OC.
Under Section 31 of the Owners Corporations Act 2006 (Vic), a lot owner must pay any fees and charges set out in a valid fee notice within 28 days of the date of that notice. This requirement applies even where the owner is on a payment plan for prior outstanding levies unless the OC has specifically agreed to defer payment of new fees. In other words, payment arrangements for old debts do not suspend the obligation to pay new levies on time unless there is a separate agreement to that effect.
In this case, the owner has continued to make payments under an agreed plan for the initial 12 months of missed levies but has not paid subsequent levies as they fell due. The OC was, therefore, entitled to pursue recovery action for the new debts.
The question is whether the OC is within its rights to seek reimbursement of legal costs from the strata manager, given that the manager appears to have failed to issue levy notices to the current owner during their first year of ownership.
Under Section 134(1) of the Act, a vendor must notify the OC of the new owner’s name and address within one month of settlement. Similarly, under section 134(2), the new owner also has an obligation to notify the OC of their details within that same timeframe. These provisions are critical in ensuring the OC has accurate records and can issue levy notices to the correct person.
If the new owner failed to comply with their obligation under Section 134(2) by not providing their contact details, the OC or its manager would not have had the necessary information to issue fee notices. In that case, the manager cannot be held to be at fault.
On the other hand, if the OC manager was properly notified of the change in ownership but failed to properly address the levy notices or issue them at all, this may indicate a failure to exercise due care and diligence, as required under Section 122 of the Act. For example, if the manager received the transfer of ownership details via the vendor’s solicitor or a certificate request but failed to update their records, they could be held responsible for the oversight. If there has been a breach of the manager’s duties, it may expose them to liability for loss or damage caused to the OC.
To determine whether reimbursement ought to be pursued, the committee should review:
- Whether and when the manager was notified of the change in ownership;
- Whether the manager had enough information to issue levy notices; and
- Whether the failure to issue those notices caused the current situation and subsequent legal costs.
It should be noted that in fee recovery proceedings, the Tribunal generally takes the view that it is only fair that the lot owner who fails to pay owners corporation fees should contribute a greater amount to the cost of a fee recovery application than the other lot owners.
Fabienne Loncar Moray & Agnew Lawyers E: floncar@moray.com.au P: 03 8687 7319