What do you do when a lot owner stops paying their levies or contributions? What do you do if those lot owners become bankrupt or on-sell their property whilst being in arrears?
The Queensland Courts have recently treated these very issues. The result was that bodies corporate may now not only pursue lot owners for unpaid levies but also for all costs reasonably incurred in recovering those unpaid levies such as solicitor or debt collector fees. In addition bodies corporate are not limited to chasing the debt from the lot owners. How is this so?
The starting point is section 145 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld). This provision provides that if a contribution or instalment is not paid on time, the body corporate may recover those amounts as if they were an ordinary debt including any costs (recovery costs) reasonably incurred by the body corporate in recovering that amount.
The liability to pay those debts falls on the person who was owner of the lot when the debt became payable or a person who becomes the owner of the lot before the debt is paid. The regulations provide the specific example of a mortgagee in possession. Furthermore the judicature have treated section 145 of the Regulation at great length.
Perhaps the most poignant case on point is Westpac Banking Corp v Body Corporate for the Wave Community Title Scheme 36237 [2014] QCA 73.[1] His Honour Justice Mullins held:
“By itself s143(1) [145 SM] is an unusual provision in that it specifies that the body corporate may recover each of the amounts specified in paras (a), (b) and (c)… …On this construction, s 143(3) extends the liability of the persons liable for a body corporate debt in relation to a lot…”
What does this mean? This means bodies corporate can recover unpaid levies, penalties for not paying levies and all reasonable costs incurred in recovering those penalties and levies from the impecunious lot owner or from anyone who becomes the owner of that lot before the debt is paid, such as a bank who enters into possession of their house.
The term “body corporate debt” is defined in the regulation’s schedule to mean a contribution or instalment, a penalty for not paying a contribution or another amount associated with the ownership of a lot. The question is whether “an amount associated with the lot” is a reasonable recovery cost. That is to say are legal fees or debt collector fees incurred in chasing up the unpaid levies “an amount associated with the lot”. Thankfully, the answer is yes they are.
Again we look to The Wave for clarification, particularly where Mullins J held that “Recovery costs are incurred by the body corporate in taking steps to recover from the lot owner the outstanding contributions and penalties in respect of the relevant lot. On the plain and ordinary meaning of paragraph (c) of the definition of “body corporate debts”, recovery costs are associated with the ownership of the relevant lot”.
The implications brought by this case are enormous for body corporates. It places in body corporates the power to recover debts from any person who is the current lot owner, irrespective of whether they personally accrued the debt.
As to recovery costs the body corporate in The Wave were able to claim over $150,000.00 for reasonable recovery costs in recovering a $5,000.00 debt.
The case places great importance not only on lot owners keeping up with their levy contributions but also to prospective buyers to do the due diligence before buying into a body corporate.
Fortunately the Courts provide a clear procedure for body corporates. Simply treat the unpaid levies as any other debt. Engage a solicitor or debt collector to chase up the levies and if necessary bring the matter before the Court for compensation.
[1] This case dealt with the identical provision in the Accommodation Module s 143.
What about wen u make payments and they re still issuing unreasonable legal fees
Hi Vicki,
Thank you for your comment. It really depends on your individual circumstances. Feel free to contact us directly for advice tailored to your situation.
Hi Vicki,
It’s best you contact one of our staff to discuss your individual circumstances.
what rights do lot owners have regarding the financial management of their scheme? can a lot owner ask the BC which lot owners are behind in their fees and what steps they have taken to recover the debt?
Jack,
Body corporate records are not private or confidential.
Section 205 of the Body Corporate and Community Management Act 1997 allows interested persons to see and get copies of body corporate records.
Fees are charged as set by the Act.
The body corporate cannot charge any other costs for giving you the information (e.g. a charge for the body corporate manager’s time).
You must write to the body corporate and ask for documents or an inspection and pay the correct fee. Once you have done this, the body corporate has 7 days to give you copies of the document or allow you to see them.
A committee member is entitled to ‘reasonable access’ to body corporate records without having to pay a fee.
A body corporate must keep:
– accounting and financial records, including accounts, bank statements and invoices
– orders and notices from a court, tribunal, council or other authority
– body corporate insurance policies
– correspondence to and from the body corporate
-general and committee meeting minutes and meeting material
notices and responses for motions passed outside a committee meeting
– contracts with a body corporate manager or service contractor, and letting agent authorisations
any authority for a service contractor or letting agent to occupy common property
– agreements made under an exclusive use by-law
– reports given by a body corporate manager acting for the committee.
However, some documents such as legal advice relating to the recovery of outstanding levies may be subject to professional legal privilege and not disclosable.
This is general commentary only, and does not constitute legal advice. If you would like specific advice, please contact info@bosslawyers.com.au
When a body corporate manager is employed to collect the levies and follow up on non payment, who is legally responsible for overdue levy recovery action and the financing of such action?
Hi Kev,
The body corporate is ultimately responsible to recover outstanding levies and also to fund any costs associated with the recovery. There may be instances where the body corporate may recover those costs.
easy to understand advice – thank you.
What happens when a property is for sale with unpaid levies? Is this debt automatically paid out as part of the settlement distributions (like council bills are) or must there be specific instructions. Concern is that once settlement has completed and owners name changed on roll, then the liability lives with the ‘owner’ (should there be no binding requirement for that settlement inclusion). Is it a default settlement deduction of special agreement required?
thanks
John,
Typically the incoming purchaser’s solicitor will require the outstanding levy to be paid or otherwise deduct that from the purchase price and pay the levy. The debt stays with the property, so if there is no provision for it in a settlement, then the incoming purchaser will be liable for it.
What if the Lot owner goes bankrupt. Are the levies accrued prior to their bankruptcy still payable by them? Or does that portion of the levies form a claim in the bankrupt estate?
Neil,
The levies accrued attach to the otand are still payable.
See the following article: https://www.bosslawyers.com.au/body-corporates-claim-legal-fees-in-recovering-levies/
Hi. Please help they keep on changing lawyers and I’m being changed every time they do that huge amounts like this year my statement show a R15000 legal cost and that makes it difficult to finish my levies.