On the 15 December 2014 the Queensland Government issued the: Queensland Government Property Law Review Options Paper Body Corporate Governance Issues: By-laws, debt recovery and scheme termination (the paper). The primary purpose of the paper is to invite submissions on how to best improve a body-corporate’s ability to self regulate as well as the issue of scheme termination.
Our focus will be on the debt recovery aspect of the paper.
Living in a unit or townhouse complex requires each lot owner to pay body corporate levies in order to cover the costs of maintaining the common property.
What is Common Property?
Common property (which is owned by all lot owners jointly and equally) consists of lifts, stairwells, gymnasiums, swimming pools, driveways, lawns and gardens.
If a lot owner is unable to or chooses not pay their levies then this can have an impact on the body corporate’s ability maintain those areas as well as affecting the enjoyment and use of those areas by other lot owners. It then falls on the other lot owners to make up this shortfall or go without particular services (i.e. the closure of pools and gymnasiums). This is also coupled by a further issue being, that the body corporate may not have sufficient funds in the sinking fund to account for further capital expenditure (i.e. painting or replacing a roof) or pay insurance premiums.
Current Position in Queensland
Currently, in Queensland a body corporate can recover the arrears in levies (plus interest) as a debt against the owner through Queensland Civil and Administrative Tribunal or the Magistrates Court, depending on the amount in question. Also of consequence is that this debt is a recurring debt meaning, lot owners who are in arrears are obliged to pay outstanding levies plus interest plus any further levies that fall due.
There a three ways in which the discussion paper suggests that this issue could be curtailed.
1. Scale of recovery costs:
The issue with the recovery of costs is that fees to do so (solicitor, court and debt collection costs) may exceed the amount owing.
One option that has been put forward by the paper is to create a scale of recovery costs which will set an amount to be charged for different actions by the body corporate to recover unpaid levies. The scale is to include legal costs as well as action taken by a body corporate manager to brief a debt collector and attendance on settlement of the debt.
The paper suggests that such a scale will provide certainty for all parties involved and limits what a body corporate can charge the defaulting lot owner. These costs can then be billed to the defaulting owner without the need for a court to determine what cost is reasonable.
2. A charge on the Lot:
A further option is to clarify the meaning of a body corporate debt so that it includes recovery costs and judgment. Currently, unpaid levies are an unsecured debt and a body corporate is not provided with any priority if the lot is sold and is accordingly not automatically entitled to recover the debt.
One option to remedy such a problem is to amend the Body Corporate and Community Management Act (“BCCMA”) and Regulation Modules so that a body corporate debt becomes a charge on the lot, which is concurrent with that of unpaid rates and land tax. This will allow the body corporate to recover the debt when the lot is sold and such a charge (i.e. an encumbrance) must be disclosed in the sales contract otherwise the buyer may have a right of termination.
There is a time limit of two years and two months by which time a body corporate must commence a debt recovery. It is suggested that this time frame be shortened to one year as the levies owing will obviously be lower at this period in time as opposed to waiting for two years. Some body corporates believe that waiting the maximum amount of time will allow them to gain further interest on the unpaid debt as opposed to the funds being placed in an interest bearing account. However, this tactic may make it all that much harder for the lot owner to pay the outstanding debt given the high default interest rate.
For a body corporate to maintain, service, insure and keep safe the common areas and property, contributions need to be paid by lot owners. For the body corporate to do this further enforcement powers are needed so that body corporates can act swiftly to rectify such issues. This is not only to keep the body corporate bank accounts healthy, but also to ensure that those who do not pay their levies do not diminish the enjoyment of these areas by residents in the complex.