Strata schemes rely on regular levy payments to maintain buildings, manage shared facilities and fund future repairs. Every apartment owner must contribute levies to cover the costs of running the Owners Corporation.
Most owners understand why strata levies matter. However, some owners fail to pay their levies on time. Unpaid levies can create financial pressure and make it harder for the Owners Corporation to complete important maintenance work.
When owners repeatedly fail to pay, strata managers and Owners Corporations may need to take steps to recover the outstanding amounts. A strata lawyer can help with levy recovery and provide advice on the appropriate process.
Administration Fund vs Sinking Fund: What is the difference?
Strata schemes generally use two main funds to manage expenses:
| Fund | Purpose | Examples |
|---|---|---|
| Administration Fund | Covers regular day-to-day expenses. | Cleaning, gardening, insurance, strata management fees and minor repairs. |
| Sinking Fund | Sets aside money for future major works and repairs. | Roof replacement, driveway repairs, gutter replacement and major building maintenance. |
What is an administration fund?
An administration fund works like a regular household budget. Owners contribute levies that cover the ongoing costs of managing and maintaining the strata scheme.
These expenses may include cleaning services, lawn maintenance, bank charges, insurance and strata management fees.
What is a sinking fund?
A sinking fund operates as a reserve for future expenses. It allows the Owners Corporation to plan for major repairs instead of relying on unexpected special levies.
Examples of sinking fund expenses include replacing a roof, repairing common property or upgrading essential building infrastructure.
Do strata schemes need a sinking fund?
Yes. A healthy administration fund does not replace the need for a sinking fund.
Strata schemes must plan for future maintenance and major repairs. Several Australian states and territories require owners corporations or body corporates to prepare long-term maintenance plans.
| Location | Maintenance planning requirements |
|---|---|
| NSW, ACT and Victoria | Require long-term sinking fund planning. |
| Queensland | Requires planning for the current year and the following nine years. |
| South Australia | Requires owners to consider long-term maintenance planning. |
What happens when strata levies are not paid?
Unpaid strata levies can quickly create financial problems for an Owners Corporation.
When owners fail to pay their contributions, the available funds may not cover essential maintenance or future building projects.
This can affect both short-term repairs and long-term planning. If the problem continues, the Owners Corporation may need to issue a special levy to cover unexpected expenses.
| Impact of unpaid levies | Potential consequence |
|---|---|
| Reduced maintenance funds | Important repairs may be delayed. |
| Lower sinking fund balance | Future major works may become difficult to fund. |
| Increased debt recovery costs | The outstanding amount may continue to grow. |
| Special levies | Owners may need to contribute additional funds unexpectedly. |
Recovering unpaid strata levies can become complicated
Owners Corporations should act quickly when levy payments remain outstanding. Delays can increase the amount owed and make recovery more difficult.
Legal disputes over unpaid levies can also result in significant costs. A failure to recover outstanding amounts may affect the financial stability of the entire strata scheme.
A cautionary tale: The Wave strata levy dispute
A dispute involving the body corporate of an apartment complex known as “The Wave” demonstrates how quickly unpaid levies can escalate.
Two owners of an apartment failed to pay their body corporate contributions. The body corporate attempted to resolve the issue through mediation, but those attempts were unsuccessful.
The matter eventually proceeded through the courts. After lengthy proceedings, the owners were ordered to pay outstanding levies, interest and recovery costs.
The owners later became bankrupt, and the mortgagee, Westpac, took possession of the property. Although Westpac paid the outstanding levies, it disputed responsibility for the recovery costs.
The Queensland Supreme Court ultimately ordered Westpac to pay the outstanding legal costs of the body corporate. By that stage, the levy recovery costs had increased significantly.
What does this case show?
The dispute highlights the importance of recovering unpaid levies early. Allowing levy debts to continue can create significant financial and legal complications.
Although legislation may allow interest to apply to unpaid levies, interest alone may not cover the financial impact of prolonged disputes.
How can we help recover unpaid strata levies?
Most Owners Corporations make every effort to encourage owners to pay their levies on time. However, some levy debts require formal recovery action.
Debt recovery companies are not always the best solution. Strata levy disputes can involve complex legal issues that require careful management.
As strata lawyers, we can assist Owners Corporations and body corporates to recover unpaid levies and reasonable recovery costs.
Frequently asked questions about unpaid strata levies
Can an Owners Corporation recover unpaid strata levies?
Yes. An Owners Corporation can take steps to recover unpaid levies from owners who fail to meet their financial obligations.
What happens if a strata owner does not pay levies?
The outstanding amount may increase through interest and recovery costs. The Owners Corporation may also commence legal action to recover the debt.
Why should unpaid strata levies be recovered quickly?
Early action can prevent debts from increasing and protect the financial position of the strata scheme.
Conclusion
Strata levies provide essential funding for maintaining shared property and planning for future repairs.
When owners fail to pay their levies, the entire strata scheme can suffer. Prompt recovery action can help protect the Owners Corporation and prevent larger financial issues from developing.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9818 2888 or email [email protected].