All owners of a lot in a strata scheme must pay contributions levied on them in accordance with the schedule determined at the annual general meeting of the owners corporation for that year (and any special contributions determined during the year).
Usually, the contributions (i.e. levies) will be quarterly and owners will be reminded of the payment dates when a notice is issued to them. Payment of the levies is not discretionary and payment cannot be withheld even if you are in a dispute with your owners corporation about other things which require payment. Put simply, there is a strict statutory obligation for lot owners to pay and pay on time. If contributions are not paid on time or at all, the consequences can be expensive and severe.
Let’s start with expensive. Unpaid contributions attract interest each day they remain unpaid. The interest is calculated at an annual rate of 10% and starts accruing 30 days after notice that the contribution is due and payable.
At the severe end of the scale, unpaid levies mean that you are unfinancial and unable to vote, ultimately it could lead to involuntary bankruptcy. This is because the Strata Schemes Management Act 2015 is detailed and strict about the obligation to pay levies, which means path to orders from a Court for the payment of those levies and the issue of a notice of bankruptcy (notice required prior to filing a claim for bankruptcy) can be straightforward. If a notice of bankruptcy is not responded to, and an owners corporation files for bankruptcy which is not successfully defended by a lot owner*, the outcome can be very dire.
In the case of Owners Of Strata Plan 71241 v Kerswell [2020] FCCA 2296 (30 September 2020), the debtor stated he owned numerous properties around NSW and had cash in the bank that combined would have fulfilled the amount being claimed. However, the Court found the debtor did not prove his statements and ordered bankruptcy (although, the order was stayed for 21 days, presumably to allow the debtor to pay the amount in the event that he could as he asserted during the proceedings).
There are steps between a late payment and bankruptcy though. Lot owners and owners corporation’s can enter into payment plans, either generally or for the payment of overdue contributions. Such plans may be for up to 12 months. And an owners corporation may also resolve that a contribution either generally or in a particular case is not to bare any interest. Both steps can ease the burden of levies on lot owners who may be struggling to make payments.
For the above reasons, it is crucial that lot owners keep their address for service updated with their owners corporation so that lot owners receive notices of contributions and, if you are having trouble paying your levies that you communicate with your strata manager and strata committee.
*We note that usually, the threshold for a bankruptcy notice is $5,000 debt with 21 days to respond to the notice. As part of the Federal Government’s Covid-19 response, the threshold was increased to $20,000 debt and six months to respond. These temporary measures are in place until 31 December 2020.
Authors: Gemma Lumley and Allison Benson