Ten Tips to Recover Unpaid Body Corporate Levies

The recovery of unpaid body corporate levies is an issue close to the heart of most body corporate committees and managers. Experienced delinquent owners can in some cases drag out the process for many years and even avoid payment entirely.

This article will focus on the practical steps a body corporate needs to take when issuing its levy statements to maximise the chances that its levies can be recovered quickly and efficiently and this article is not intended to be a substitute for proper legal advice and, if you have any questions, we encourage you to contact us to discuss the matters raised.

Key Takeaways

Authorise levies correctly: ensure levies are properly authorised at general meeting in accordance with the applicable module process, as defects can be relied on by delinquent owners to avoid or delay payment.
Keep proof levy notices were sent: maintain clear records and a reliable system for issuing levy notices so allegations of non-receipt can be comprehensively rebutted.
Get due dates and notice requirements right: ensure levy instalments are due on the correct authorised date and that levy statements comply with the formal module requirements (including required content and timing such as the 30-day notice requirement under the standard module).
Only charge penalties if properly authorised: penalty interest must be authorised by body corporate resolution and is simple interest at a stated rate per month, up to a maximum of 2.5% per month.
Recover reasonable costs — but act reasonably: bodies corporate are empowered to recover unpaid levies, authorised penalties, and reasonable recovery costs as a debt, but should act reasonably and obtain appropriate legal advice to support recoverability.
Use the right recovery and enforcement pathway: consider using specialist lawyers to issue demands and proceedings, assess reasonable payment plans, comply with statutory timeframes to commence recovery action, and choose an enforcement method (UCPR enforcement warrants or, where appropriate, bankruptcy) based on the debtor’s circumstances and prospects of recovery.

TIP 1. Make sure the levies are properly authorised by the general meeting

This may seem like a statement of the obvious, but we have seen situations where a clever delinquent owner has identified that a levy statement has not been properly authorised at general meeting and seized on that issue to avoid or delay payment.

The accommodation, standard and commercial modules all set out the process for raising levies, which in essence is as follows:

The body corporate sends out a notice of the general meeting to the lot owners;
The proposed budgets are sent with the notice; and
At the general meeting, the body corporate decides how much each owner will pay for the upcoming financial year and when each instalment will be paid.

If there is a defect in the manner in which this process is completed and the levies are not properly authorised, there is a risk that the levies will not be recoverable. Worse still, an attempt by the body corporate to fix up the problem and retrospectively authorise levies could be an invalid act (this was the opinion of the adjudicator in the recent decision of Sphere Southport Living [2013] QBCCMCmr 30).

TIP 2. Maintain evidence that the levy notices were actually sent

This would appear to be another statement of the obvious, but the physical issuing of levy notices is another troublesome area.

Delinquent owners commonly allege that they never received the levy notice. The body corporate needs to be in a position to provide evidence to comprehensively rebut that assertion. We recommend that whoever is responsible for issuing the levy notices (usually the body corporate manager) has a clear system in place for the issuing of notices and maintains evidence in its files of levy notices that have been sent.

TIP 3. Make sure that the levy notices are due on the correct date

The accommodation, standard and commercial modules all require the general meeting to authorise the date on which owners must pay the levy instalments. Make sure that the levy statements are payable on the correct date. A clever delinquent owner might attempt to avoid paying the entire levy on the basis that the date is incorrect and, depending on the circumstances, this argument might succeed.

TIP 4. Make sure the levy statements comply with the formal requirements of the relevant module

Each of the accommodation, standard and commercial modules set out the technical requirements for a levy notice. For example, for schemes governed by the standard module, the levy statement must be given to the lot owner at least 30 days before the contribution and it must set out:

the total amount of the contribution levied on the owner;
the amount of the contribution, or instalment of contribution, whose payment is currently required;
the date (the date for payment) on or before which the contribution, or instalment of contribution, must be paid;
any discount to which the owner is entitled for payment of the contribution, or instalment of contribution, by the date for payment;
any penalty to which the owner is liable for each month payment is in arrears; and
if the owner is in arrears in payment of a contribution or penalty, the arrears.

The failure by the body corporate to comply with the technical requirements has in the past invalidated a levy notice (see for example, Lakelands Signature Living [2009] QBCCMCmr 412).

TIP 5. Know the penalties you’re entitled to charge and make sure they are properly authorised

The late payment of levies by delinquent owners is a disruption to the smooth operation of a community titles scheme because it causes the body corporate not to have its budgeted cash flow, which if not properly managed could disrupt the supply of services by the body corporate. In addition, the body corporate committee has to spend time and effort in pursuing the unpaid levies and managing the consequences arising from the unpaid levies.

To encourage lot owners to pay their levies on time, and to compensate the body corporate for the late payment of levies, each of the accommodation, standard and commercial modules permit a body corporate to pass an ordinary resolution fixing a penalty to be paid by lot owners if a levy is not received by the body corporate by the due date.

Each module provides that the penalty must consist of simple interest (i.e. the lot owner cannot be asked to pay interest on the interest) at a stated rate for each month the contribution is overdue. The maximum allowable monthly interest rate is 2.5%. This equates to an annual rate of 30%.

An example of how this penalty is calculated is as follows:

Assume that a body corporate has annual administration and sinking fund levies of $3,000, payment in four instalments, with the first instalment due on 31 March.
Assume that the body corporate validly issues a levy notice for the first instalment of $750 (due on 31 March), but the lot owner does not pay the levies until the 3rd of July.
Assume that the body corporate previously validly passed a resolution authorising the imposition of a penalty of 2.5% per month on overdue levies.
The penalty is $56.25, being $750 ×2.5%×3 months.

It’s important to note that the module by itself does not entitle a body corporate to charge the penalty – the body corporate must first pass a resolution authorising the imposition of the penalty.

Typically a body corporate will pass a resolution at its first general meeting authorising that a penalty of 2.5% per month is payable if a levy is not paid on the due date.

We suggest you check your body corporate records carefully to ensure this resolution has been passed.

Some delinquent lot owners might try and argue that a penalty of 2.5% is void on the basis that it is not a general pre-estimate of loss. This argument has never previously succeeded in a body corporate context. The preferable view is that these principles have no application to this type of penalty, given that the penalty does not arise from contract law, but rather arises from a resolution of the body corporate as specifically authorised by statute.

TIP 6. Know the costs you are entitled to charge and make sure they are properly authorised

Assume that:

A lot owner has not paid his or her levies for a year;
Penalty interest has accrued and continues to accrue on the debt;
The lot owner does not respond to telephone calls or letters from the committee or strata manager.

This body corporate now needs to instruct lawyers to take the necessary action to recover the levies. However, naturally, the process will incur legal costs, including court filing fees, process server costs and professional fees. All committees want to know how much the process will cost and whether the body corporate can recover its costs.

The good news is that a body corporate, as a litigant attempting to cover an unpaid debt, is better placed to recover its costs that almost any other creditor. This is because, in recognition of the importance of levy collection for the smooth operation of a community titles scheme, a body corporate is empowered by statute to recover as a debt:

The amount of the unpaid contribution;
Any penalty for not paying the contribution (as discussed in tip 5); and
Any costs (including recovery costs) reasonably incurred by the body corporate in recovering the amount.

Practically, this means that, except in rare circumstances, a body corporate should be able to recoup all its recovery costs so that the body corporate is not out of pocket as a result of the debt recovery exercise.

The issue of recovery costs has been raised in many cases but the issue now appears to be fairly settled. In the District Court decision of Body Corporate for Sunseeker Apartments v Jasen [2012] QDC 51, the court held that a body corporate could recover costs and disbursements reasonably incurred and reasonable in amount.

The body corporate therefore needs to ensure it acts reasonably in pursuing a debt. The body corporate should carefully consider what actions it takes in recovering unpaid levies, and take appropriate legal advice throughout the process, to be best placed to rebut future arguments that its actions (and therefore its costs incurred in taken those actions) were unreasonable.

TIP 7: Use a solicitor to send a letter of demand and issue proceedings

The recovery of unpaid body corporate levies is a relatively specialised area of the law. Whilst it may be tempting to engage a debt collection agency for the recovery of the debt, we suggest that bodies corporate engage lawyers who are experts in this area. This will ensure that the body corporate recovers the maximum amount possible, because:

As discussed in the previous articles in this series, a number of technicalities must be observed in striking and issuing the levies, failing which the levies may not be recoverable. A lawyer can identify and rectify these issues at an early stage.
There is some complexity in the law in relation to the recovery of the body corporate’s costs of pursuing the unpaid body corporate levies and it is important that the correct procedure is followed in recording and paying recovery costs. A lawyer can advise in relation to this process with a view to recouping all of the body corporate’s recovery costs so that the body corporate is not out of pocket as a result of the debt recovery exercise.
The enforcement of any judgement obtained needs to be the subject of legal advice, given that, depending on the specific nature of the debtor, certain methods of enforcement will be more effective than others. This issue is explored further later in this article.

TIP 8: Consider reasonable payment plans

Often when confronted with a letter of demand or the service of legal proceedings, a lot owner will propose a payment plan to the body corporate committee. This plan needs to be carefully considered by the committee.

If a payment plan will pay the debt down in a reasonable time and the lot owner commits to the plan in writing, accepting the plan (or negotiating further) may yield a better and faster result than insisting on immediate payment and pushing ahead with legal proceedings. The court will often permit a lot owner to pay a judgement debt down in instalments over a period of time (up to several years), so the body corporate may find that the payment of levies is not immediate, even after pushing ahead with court proceedings.

TIP 9: Comply with statutory timeframes

The modules prescribe a period within which the body corporate must commence proceedings for the recovery of the debt. Specifically, the standard module requires that if the amount of a contribution has been outstanding for two years, the body corporate must, within two months from the end of the two year period, start proceedings to recover the amount.

TIP 10: Consider carefully the method of enforcement

Once a body corporate decides to proceed with litigating the debt, the usual recovery process can be summarised as follows:

The body corporate issues Court proceedings against the lot owner in the appropriate jurisdiction, usually the Magistrates Court of Queensland.
The proceedings are served on the lot owner, who has 28 days to file a defence. If the lot owner does not offer a defence, the body corporate applies for and obtains default judgement against the lot owner.
The body corporate conducts an enforcement hearing through the Court to learn about the financial position of the lot owner.

At this point, the body corporate needs to carefully consider how best to enforce the Court’s judgement and recover the debt.

Enforcement under the UCPR

Usually, the body corporate would enforce the judgement through the Uniform Civil Procedure Rules (“UCPR”) enforcement process. This requires the body corporate to obtain an enforcement warrant from the Court pursuant to the enforcement provisions in the UCPR. Specifically, the body corporate might seek one or more of the following enforcement warrants:

Seizure and Sale of Property;
Redirection of Monies owed;
Redirections from Financial Institutions; and
Redirection of Earnings.

The seizure and sale of property enforcement warrant is commonly used. It is a process whereby the court bailiff is retained to seize specific property owned by the lot owner (i.e. the lot in relation to which levies are owed) and then arrange for its sale.

If the body corporate obtains an enforcement warrant for the seizure and sale of property, the body corporate will also register a writ of execution on title of the title of the lot to allow the bailiff to subsequently execute a transfer of the property in favour of the ultimate purchaser.

Enforcement through bankruptcy

An as alternative, for lots that are owned by natural persons, the Body Corporate could seek to enforce the debt by bankrupting the lot owner pursuant to the Bankruptcy Act 1966 (Cth). This process can be summarised as follows:

The body corporate obtains a bankruptcy notice from Australian Financial Security Authority and serves it upon the lot owner. A bankruptcy notice can be obtained if the lot owner has a judgement against them of $5,000 or more. The bankruptcy notice requires the lot owner to comply with the notice by either paying the debt within 21 days, or making an application to have the bankruptcy notice set aside.
If the lot owner fails to comply with the bankruptcy notice, the lot owner will have committed an act of bankruptcy.
If the lot owner commits an act of bankruptcy, the body corporate can make a creditor’s petition to the Court, which will declare the lot owner bankrupt and appoint a trustee in bankruptcy (of the body corporate’s choice) over the assets of the lot owner.
The trustee in bankruptcy can take possession of the lot owner’s assets (including the lot) and sell the assets to recover the body corporate debt.

In our experience, whilst enforcement through the UCPR enforcement provisions may eventually be successful, the procedure is very slow, cumbersome and without a high probability of success. The body corporate must also meet the bailiff’s strict conditions for offering the property for sale. The process can often take years.

While bankrupting a lot owner is not a simple process either, in the right matter, it holds a significant advantage over the UCPR enforcement process because it allows the body corporate to control the sale process as the sale is conducted by a trustee in bankruptcy of the body corporate’s choice, not a Court appointed bailiff.

The choice of enforcement process needs to be carefully considered and needs to be the matter of expert legal advice in light of the specific circumstances. The position of any mortgagee in possession also needs to be actively considered.

For more information about body corporate law or property law, browse our website or use the enquiry form on the right to contact our lawyers.

If you have any questions regarding this article, please contact Andrew Kyle of ABKJ Lawyers on 07 5532 3199 or at AJK@ABKJ.com.au

FAQs

1) What needs to happen for body corporate levies to be recoverable?

Levies need to be properly authorised at general meeting in accordance with the process set out in the applicable module, and levy notices must be correctly issued. If there is a defect in the authorisation process, there is a risk the levies will not be recoverable.

2) Why is evidence that levy notices were sent so important?

Delinquent owners commonly allege they never received the levy notice. The body corporate should have a clear system for issuing notices and maintain evidence in its files of levy notices that have been sent to rebut that assertion.

3) What formal information must a levy notice include under the standard module?

For schemes governed by the standard module, the levy statement must be given at least 30 days before the contribution is due and must set out the total contribution levied, the instalment currently required, the due date, any discount for payment by the due date, any penalty payable for each month the payment is in arrears, and any arrears of contributions or penalties.

4) Can a body corporate charge penalty interest automatically if levies are overdue?

No. The module does not by itself entitle a body corporate to charge the penalty. The body corporate must first pass a resolution authorising the imposition of the penalty. Where authorised, the penalty is simple interest at a stated rate per month, up to a maximum of 2.5% per month.

5) Can a body corporate recover legal costs and recovery costs from a delinquent owner?

Yes. A body corporate is empowered by statute to recover as a debt the unpaid contribution, any authorised penalty for late payment, and any costs (including recovery costs) reasonably incurred in recovering the amount. To be best placed to recover costs, the body corporate should act reasonably and take appropriate legal advice throughout the process.

6) What enforcement options are available after obtaining judgment for unpaid levies?

Enforcement is commonly pursued through UCPR enforcement warrants, including seizure and sale of property, redirection of monies owed, redirections from financial institutions, and redirection of earnings. For lots owned by natural persons, bankruptcy may be an alternative enforcement pathway in appropriate matters, and the choice of enforcement process should be the subject of expert legal advice based on the specific circumstances (including the position of any mortgagee in possession).