COVID-19 Changes to Strata Levy Debt Recovery
There are some key changes to the requirements of strata levy debt recovery during the COVID-19 crisis. Owners corporations and body corporates will now need to reconsider how they recoup unpaid strata contributions.
On March 25th, 2020, the Australia Government announced changes to personal and corporate insolvency laws as part of their economic response. The changes now have a dramatic impact on the way overdue strata levies are recovered.
What are strata levies?
Strata levies are a fee or ‘contribution’ paid by all lot owners in a scheme to cover any projected costs and expenses. The funds raised are fundamental to all strata, community and body corporate schemes as they pay for the upkeep and repairs to common areas of the property, without which the property would fall into disrepair, along with more everyday costs including utilities and building insurance. The amount and frequency of levy payments are generally decided on an annual basis at the Annual General Meeting.
Changes to Strata Levy Debt Recovery
The changes to the insolvency laws, while temporary, will have a significant effect on the cashflow of owners corporations and body corporates.
The changes are designed to protect unnecessary insolvencies and bankruptcies for a six-month period during the COVID-19 health crisis.
The measures will assist individual strata owners manage debt and to avoid bankruptcy due to unpaid strata levies.
What are the changes to Strata Levy Debt Recovery?
Minimum Amount of Debt
- Statutory Demand: The minimum amount of a debt required for an owners corporation to issue a creditor’s statutory demand against a corporate lot owner will increase from $2,000.00 to $20,000.00.
- Bankruptcy: The minimum amount of a debt required for an owners corporation to initiate bankruptcy proceedings against a lot owner in levy arrears will temporarily increase from its current level of $5,000.00 to $20,000.00.
Lot Owners Time to Respond
- Statutory Demand: The time for a corporate lot owner to respond to a creditor’s statutory demand will be extended from 21 days to 6 months.
- Bankruptcy: The time a lot owner will have to respond to a bankruptcy notice will be temporarily increased from 21 days to 6 months.
Therefore, for the next 6 months, and maybe longer, the standard practice of utilising a statutory demand or a bankruptcy notice to collect unpaid contributions is not a viable option for owners corporations and body corporates.
Alternative Levy Recovery Methods
Owners corporations and body corporates will now need to consider other methods where necessary and appropriate. Alternative methods for debt collection methods may include garnishee orders in respect of wages/salaries, funds in bank etc or a writ on property that would allow the Sheriff to seize and sell goods that belong to the owner.
It is a time where owners corporations and body corporates need to be reasonable, fair and considerate. Deciding to take action should be based on individual circumstances.
- What is the relevant owners levy payment history?
- Can the owner demonstrate a financial hardship as a result of COVID-19?
Levy recover actions in process prior to the pandemic would like to follow due process unless there are extenuating circumstances.
Managing strata cash flows during the pandemic will be a significant challenge in the months to come. Collectively, owners corporations and body corporates need to make smart and equitable decisions.
We always recommend seeking legal advice when owners corporations and body corporates are considering levy debt recovery actions.