Each lot owner in a strata plan is required to pay levies (usually due quarterly) which make up the administrative fund and sinking fund of the strata scheme.
The law allows an Owners Corporation to recover outstanding levies as a debt if they are not paid after one month of becoming due and payable. These are called ‘levy arrears.’ Interest may be charged on the levy arrears at 10% per annum. This interest is also recoverable by the Owners Corporation.
An Owners Corporation will not be out of pocket by commencing legal proceedings. The law also allows costs incurred by the Owners Corporation in commencing legal proceedings to recover the outstanding levies to be recoverable from the lot owner. If proceedings are defended questions can arise about how much of the costs incurred are recoverable.
Requirements of Owners Corporations prior to commencing legal proceedings
If the reasonable estimated costs for conducting legal work is greater than $1,000 per lot or $12,500 for the whole scheme (whichever is lower), the Owners Corporation must call a general meeting and pass a resolution to obtain legal advice and to initiate legal proceedings.
The Owners Corporation is to circulate legal costs disclosures to lot owners and executive committee members within 7 days.
Options to recover levies
When a lot owner has levy arrears, they can’t vote at general meetings (except on motions that require unanimous resolutions).
When a lot owner in a strata plan does not pay their levies, an Owners Corporation has a few options to recover the levies.
At first instance, it is always a good idea to issue a letter of demand. Often a lot owner just needs a little nudge (or the threat of legal proceedings) to jolt them into paying their outstanding levies. This is a cheap and successful tool in recovery.
If no response is received from the letter of demand, an Owners Corporation should serve a Statement of Claim (issued by a Court) on the lot owner. The lot owner has 28 days from the date of receiving the Statement of Claim to pay the outstanding amount or lodge a Defence.
If the outstanding levies and legal costs have not been paid (and no Defence is lodged) within 28 days, the Owners Corporation can apply for Default Judgment.
Default Judgment against a lot owner means the Owners Corporation can then proceed to enforce the Judgment.
Enforcement options include issuing a writ for levy of property, garnishee order or commencing bankruptcy proceedings (or winding up proceedings in relation to a company).
For legal advice on strata issues, contact RM Legal Sydney.