Across New South Wales (NSW), owners corporations of strata schemes sometimes incur significant amounts of debt due to unpaid levies. This stresses the importance of having effective strategies when collecting levies. Levies may be unpaid because:
- new strata owners don’t know the rules yet;
- large special levies were raised;
- the wrong address is on file for the notice;
- the property manager responsible for paying the levies is causing a delay; or
- some owners just don’t like to pay.
This guide outlines various options to assist owners corporations in collecting levies and recovering debts.
What is a Strata Scheme?
A strata scheme is a building or development split into two forms of property:
- common property; and
- lot property.
Common property is the property that all owners share and enjoy. Lot property refers to individual parts of property that is owned separately within the building or development. If some owners do not pay their strata levies, other owners have to foot the bill. Owners corporations have legal obligations to maintain the scheme set out in the strata laws and require cash to carry out those obligations.
How Can Strata Schemes Recover Debts?
Since the changes to the strata laws in 2016, there are now more ways for owners corporations to recover funds, all of which have their pros and cons. The three main ways include:
- internal negotiation with members of the scheme;
- payment plans; and
- debt recovery proceedings.
Proactive Measures to Avoid Debts
There are also proactive, non-legal measures owners corporations and managers can undertake to minimise levy defaults at the outset, including:
- keeping up-to-date records;
- providing easy payment facilities;
- providing clear meeting requirements and reminders through transparent and timely communication;
- breaking up large special levies; and
- forward planning with incremental levy increases.
These best practice procedures go a long way in avoiding debts.
Keeping better records should be a priority for your owners corporation.
For example, you can keep a detailed log of all of the owners and their contact details. More importantly, you should periodically update the log and ensure you use the correct email addresses in any correspondence.
Easy Payment Facilities
Ensure your payment options and facilities are simple and easy to use, so owners have fewer excuses to avoid paying. Doing so is especially relevant because there are no threatening external situations that compel owners to pay levies. In a strata scheme, if an owner does not pay, the only consequences they face are the debt they owe.
Open and regular communication is more than just sending meeting notices and bills to the owner. You should connect with your owners and educate them about levies. It is important for them to know:
- what levies are;
- why they’re important; and
- when they need to be paid and why.
Information about levies should be easily accessible on your website. You should also send such information to the owners via email, particularly before the levies are due.
For investor owners, seek their permission to send such material on levies and meeting notices both to their agent and directly to them. Doing so ensures that they are aware of what is going on. Further, they cannot use the excuse that their agent failed to pay levies.
Communication also encompasses more general strategic thinking around expenses and levies. It is ideal to plan for the future in terms of expenses and levies and communicate those plans accordingly with your owners. Rather than charging large special levies on a needs basis, charge a little over a period of time.
Options to Recover Debts
Unpaid levies may arise due to poor communications or bad agents. Many investor owners rely on agents to pay their levies. If their agents fail to pay levies on their behalf, owners corporations struggle. If such is the case, you can negotiate with the owner to recover the debt.
It is strategic to communicate with the owner as soon as they fail to pay their debt. You should clearly set out the levies and how much is owed. Sometimes an agent may fail to update their contact information and consequently may not receive any levy notices. Again, it is useful for you to also periodically check that their contact information is up-to-date.
In NSW, owners cannot use the excuse of not receiving a levy notice as a defence for not paying it. Therefore, coming to an arrangement with both the owner and agent through negotiation can help:
- recover debts;
- save legal costs; and
- prevent similar issues from occurring again.
Internal Payment Plans
A new mechanism for owners corporations is the ability to enter into a payment plan with lot owners for the payment of overdue levies. This is not an order to pay, but rather a legal mechanism for the payment of arrears.
Ideally, a payment plan should follow the negotiation process outlined above. If the debt is sizable, or a special levy that is overdue, it may simply be easier to organise a payment plan to cover the payment of the arrears over time.
The payment plan requirements are fairly flexible under the strata laws and is a viable alternative to litigation with once-off arrears or a missed special levy.
Court or Tribunal
Broadly speaking, there are two main avenues to obtain an order for payment of unpaid levies. This is through the:
- NSW Civil and Administrative Tribunal (NCAT); and
- Local Court of NSW (for most debts at first instance).
You would typically go to NCAT if you are pursuing the owner for a separate matter in NCAT and that matter is pending.
Most small debt claims are made through the Local Court, which can hear recovery claims of up to $10,000 in its small claims division or up to $100,000 in its general division. This is done through filing a statement of claim in court, moving to judgment and enforcing the judgment. Of course, some owners may seek to defend the claim, which means you will need to go to a hearing.
Recovering unpaid levies is an unfortunate feature of strata living. However, these tips will make the burden a bit easier:
- be sure to communicate well with your owners about the levies. This is more education than a follow up. Strata living is a community and a community supports itself;
- offer convenient payment facilities and keep your records up to date; and
- if it comes to it, seek to negotiate with owners in arrears. You may be able to enter into a payment plan. Failing that, you can seek to recover the debt in court or at NCAT.
If you need assistance recovering debt, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.
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