Print

Financial management transcript

Welcome to the Office of the Commissioner for Body Corporate and Community Management’s webinar. Today’s topic is Financial Management and all the information involved with that.

Topics

Okay so today we’re going to be going through these following topics:

Budgets

Firstly we’ve got budgets. I’ll go through the requirements for the body corporate to have budgets set each year. So you’re administrative and sinking fund budget is required for the Small Schemes, Commercial, Accommodation, and Standard Modules - but a Specified Two-Lot Scheme does not have to have a budget or sinking fund or admin fund.

A copy of the budget must accompany the motion approving the budget. When you send your AGM paperwork out it must accompany that paperwork. There is no minimum amount that has to be in the sinking fund. The amount that the body corporate must save up is based on the requirements of the scheme and what is in the forecast and the needs of the scheme.

So every scheme has its own maintenance needs depending on the age of the building, the type of the building, your plan type for example. So each scheme has an individual amount they need for their sinking fund budget. We often get people saying “how much money do you have to have in it?” There is no minimum amount.

The draft budget is set up by the committee before the AGM, usually at a “budget meeting”. While you might have a body corporate manager assisting in your drafting of your budget, the committee really should be checking it before it goes onto the AGM agenda to be sure that they’re happy with it.

And as I said there is no limit on the increase. If for some reason your body corporate has a major need to raise the funds because there’s these new maintenance issues that have cropped up, the budget may have to be increased by a high amount.

The legislation states that the budget must be based on reasonable and necessary expenditure for your scheme.

Adjusting budgets at AGM

Adjusting the budget at the AGM is often misunderstood so I’m going to go through this in its own special slide to make it very clear how it works. The big important thing to remember is that while you can set up the draft budget and increase or decrease before it is presented at the AGM, the budget can only be adjusted at the AGM itself by 10% up or down. And that can only happen if there is a motion already on the agenda relating to spending.

So for example, the proposed budget for your administrative fund might be $50,000. It can be adjusted up or down by 10%, so no more than $5,000. If there is a motion on the agenda that passes spending that was not included in the budget you could increase the budget by 10%. If there was a motion on the agenda that did not pass and the budget did include that amount, you could reduce your budget by 10% at the meeting. So it must relate to a motion that is already on the agenda. That is the only way you can adjust your budget at the AGM.

If then there is a motion on the agenda that requires the budget to be adjusted then the majority of voters present and entitled to vote on the motion must vote and agree to the adjustment. So that’s a form of procedural motion you can raise at the meeting on the day.

If that passes the levies then proportionately get adjusted so that everyone knows what they should be paying. And a copy of the amended budget, and probably logical to do the levies as well, must be sent out with the AGM minutes so everyone understands what the budget is going to be and what they have to pay.

Administrative budget

So now we’ll look at the administrative budget. The administrative budget raises money for the current financial year only for anything that is not required to be paid from the sinking fund. So this usually includes:

  • regular and recurring maintenance of common property
  • insurance charges
  • administrative expenses, such as for example your costs for meetings and running the body corporate, administrative costs for the body corporate manager or the caretaker’s fees, utility charges, or legal expenses are typical administrative fund costs.

Sinking fund budget

So now we’re onto sinking fund budget. The sinking fund budget raises money for:

  • the anticipated or one off non-recurring capital expenditure for maintenance. So typical examples are your painting, structural repairs, replacing the roof of the building if you’re a building format plan
  • replacement of common property or assets – common property pools or pool furniture or something as an asset, or mowers, or that sort of equipment would usually be sinking fund costs
  • improvements to common property might be a sinking fund cost which is because they’re typically non-recurring so it might be some form of upgrade where you paint the building in a different colour, you add pergolas to the common property, you add barbecue areas to the common property that benefit everybody
  • also the sinking fund covers any other expenditure that should reasonably be met from capital.

Anything that’s not listed as a requirement for the sinking fund would then fall into the administrative fund expenses.

Sinking fund forecast

So now the forecast for the sinking fund. So your sinking fund budget must be based on a sinking fund forecast which looks at spending for the current year and at least 9 years into the future. The expenditure for maintenance is time based so your sinking fund budget and the forecast must use time-based anticipated expenditure amounts to calculate how much must be raised for the current year plus saving up for those future amounts so that at the time you’ve anticipated that you have to do the work you have the money saved up already.

There’s no requirement to get a professional report done for a sinking fund forecast. The body corporate can choose to obtain a professional report and use it as a guide or the committee or body corporate manager can draft up a forecast. But it is best practice to review that forecast every year because you’re going to set your budget each year you need to be sure that you’re still on track for all those known, anticipated maintenance items that are set up as a time-based maintenance schedule.

So the forecast is a guide for projected expenditure and as you know costs always seem to increase so generally budgets increase. The maintenance needs of the body corporate may change at any time as well. So some items may become more urgent so even though you have a forecast that might have something happening in say 5 years’ time, it may be able to be moved to a closer timeframe if the work has become more urgent and so that’s where you would adjust your forecast therefore adjust your sinking fund budget for the year and that’s where it is a really good idea to review the forecasted costs regularly to ensure that the savings are still on track.

Levies

So then once you’ve got your budget your levies are based on your administrative and sinking fund budgets that are approved at the AGM. So all of the levy except for the insurance premium is calculated using your contribution schedule lot entitlements. The total value of the budget is divided by the total contribution schedule lot entitlement amount. This gives the value of one contribution schedule lot entitlement. And then the value of 1 contribution schedule lot entitlement is multiplied by the number of contribution schedule lot entitlements registered for that 1 lot and that gives that lots’ amount of the levy they must pay.

The balance of the levies, the rest of it, is your insurance premium, usually. It is worked out the same way as the rest of the levies, except that it is based on the interest schedule lot entitlements for a building format plan. But if you’re a standard format plan, then the share of the cost of the insurance premium is based on a percentage share of the cost of the reinstating the building so it is calculated a different way. But that will still be part of the administrative budget in the levies.

Levy notices

Written notice of levies must be sent out at least 30 days prior to the due date and it must show the total amount, an instalment amount (so if you pay quarterly, half-yearly, however much for the total year), the due date of each levy, the discounts, penalties and any arrears amounts if applicable.

It can also show amounts that the owner has agreed to for example a “supply of services” like maintenance services for example mowing the yard or other maintenance services, pest control for example, that the owner has agreed to under a “supply of services”. Or another example is exclusive use payments where an owner knows they have to pay an amount under their exclusive use by-law to the body corporate. Those amounts can also been shown on the levy notice.

So a levy notice can be emailed to an owner or sent to their address for service or in the way directed by the owner. So it can be emailed if an owner requests that. It’s more practical to do that for costs if you don’t have to mail things these days, most people can get email.

Big important thing to remember that if you do not receive your levy notice, for whatever reason whether it’s lost in the mail, someone forgot to send it, or other reasons, it’s not grounds not to pay your levy on time. The due dates and amounts of your levies are set at the AGM and should be in the AGM minutes so best practice is that every owner should read those minutes and know when their levies are due. So even if you don’t get your levy notice, which yes it is a handy reminder and must be done, but for some reason if you don’t get your levy notice you’re still liable to pay your levies.

Discounts and penalties

So moving on then to discounts and penalties which are part of the budget. So what are they and how does the body corporate apply them to the levies? So a discount of not more than 20% can be approved by ordinary resolution of the body corporate and obviously the budget will have to allow for that discount. So the budget needs to work out that they might only be receiving 20% less of the money that they actually need so they need to make sure that that discount is factored in.

Also penalty interest of up to 2.5% per month can be approved by ordinary resolution and it must be calculated as simple interest and interest cannot be applied to recovery costs – it is only applied to levies. We’ll be going into interest and debt recovery further on in the talk. Also, penalty interest can only be applied from the date of the general meeting approving the application of interest, it cannot be backdated.

Committee spending

So now we’ve dealt with the budgets and everything and hopefully that’s clear, we’ll move onto committee spending. Firstly committee spending. The committee can spend up to their committee spending limit in one approval. So at one committee meeting or in one ‘vote outside a committee meeting’ or one approval they can approve up to the “relevant limit for committee spending” which is $200 x the number of lots or an amount set by ordinary resolution at a general meeting. Please note the committee spending limit does not apply to the Commercial Module or the Two-Lot Schemes Module – there is no committee spending limit so the committee has a bit more flexibility in what they can approve.

Note that the committee spending limit is GST inclusive so you need to know the amount that you have to pay of GST in your total amount you’re approving and the committee can’t remove the GST to try and get it in under their limit. The committee also cannot break up projects to bring costs down to stop the requirement to call an EGM if the project or the invoice they’re approving is over the committee spending limit. So they can’t break up projects.

The committee also can only spend money if there is an allocation or room in the budget for the spending. So the legislation doesn’t state how specific your budget has to be. For example some schemes have lots of specific maintenance line items itemising lots of different things versus some schemes have one big line item that covers a very general maintenance topic so there may be flexibility inside that amount for the committee to spend on maintenance items for example.

A special levy is required if there are insufficient funds (not allocated in the budget). So adjudicators have stated that a special levy must be raised but also have said it may be possible to adjust the budget if there is flexibility or room in the budget, as I mentioned in the previous point.

Body corporate spending

So body corporate spending now. So the body corporate can approve any expenditure at a general meeting if the budget has funding included. So whatever value it is, owners put motions forward, committee puts motions forward, the general meeting can approve any expenditure if there is allocation in the budget.

If there’s no allocation, obviously a special levy needs to be raised or the budget needs to be amended by ordinary resolution.

Again, the body corporate can still not break up projects to prevent the need to get 2 quotes (we’ll be going into the major spending limit shortly). And if there are large quotes attached to your AGM or EGM paperwork, summaries of quotes can be attached with the information for owners telling them where they can get the full quote if needed. If it voluminous and excessive, to save on postage costs and photocopying costs, a summary of the quote can be sent out to owners with the general meeting paperwork.

Major spending limit

So the major spending limit. So when do you, the body corporate, need to get 2 quotes? So 2 quotes are required if spending is over the “relevant limit for major spending”. So that’s the definition in the schedule dictionary in the back of your Module. The definition is $1,100 x the number of lots in the scheme or $10,000 – whichever is lower. Or the body corporate can adjust this amount by ordinary resolution. And again, it’s inclusive of GST.

So if something is over that cost, whether or not it is under the committee spending limit… So in a big scheme the committee spending limit can be over the major spending limit so the committee may have to get 2 quotes in some circumstances. Smaller schemes usually it will be general meeting spending.

So if it’s not practicable to obtain 2 quotes, because for example the goods or works with the required specifications or qualifications or whatever are only obtainable from a single provider, the body corporate may be able to then present only 1 quote at the general meeting.

But even a single quote, or the 2 alternatives, must be presented with the motion and the general meeting paperwork.

Spending limits in layered schemes

So for anyone who has to deal with layered schemes – the spending limits in layered schemes work slightly differently. I’ll just go through this quickly for those, especially body corporate managers or anybody, in a layered scheme.

So the “relevant limit for committee spending” is normally your $200 x your number of lots but in a layered scheme it’s x the number of LAYERED lots. That’s all the lots added together in the principal body corporate, all the subsidiary lots in each subsidiary scheme (if it’s a body corporate) or individual lots added together.

The “relevant limit for major spending” where you need your 2 quotes again is worked out the same. It’s $1,100 x the number of LAYERED lots or $10,000, whichever’s lower. Or an amount that’s changed by the principal body corporate previously by ordinary resolution.

Again, both those amounts are GST inclusive.

So that third point there shows you the total number of layered lots is all the subsidiary scheme lots plus any non-body corporate lots (so just individual lots) added together. So you have one lot that is not a body corporate, then you have a body corporate of 120 lots, and another body corporate of 59 lots, all sitting under the PBC totalling 180 lots in that PBC scheme and that’s the number of layered lots in the scheme. So for the major spending limit for that scheme, the PBC level voting is $18,000.

Spending limits for maintenance

Is there an upper limit? When does it have to go to special resolution or resolution without dissent for decisions on spending that is very high amounts?

When it is maintenance, which equals repair or replacement “like for like”, it is always an ordinary resolution at a general meeting. Okay so if it’s over your committee spending limit, it’s always going to be a general meeting ordinary resolution even if it’s millions of dollars’ worth for maintenance items. Obviously if it’s under the committee spending limit it’s going to be a committee decision by committee resolution. But there’s no upper limit to maintenance spending. As I said some big schemes spend millions of dollars on painting and other works and it may be, if it’s just maintenance where it is repair or replacement “like for like”, that is when it stays an ordinary resolution.

Spending limits for improvements

So then improvements. So we always get people getting confused between what is maintenance versus what is an improvement. As I said before, maintenance is replacement or repair but “like for like” as close as possible depending on the age of the scheme. An improvement, otherwise, is a change either by addition, exception, omission, or substitution. And that’s defined in the Acts Interpretation Act as well as the Body Corporate and Community Management Act states change or an improvement can be structural or non-structural change to the body corporate.

We usually work from the theory of if it was installed by the developer or the builder at the start of the scheme, if you’re changing from what was originally put in, it could potentially be considered an improvement. So if you’re removing something, if you’re adding something, if you’re changing colour schemes, adding pergolas, whatever it might be, changing fence height, changing from a wooden fence to a Colourbond fence is a typical example of an improvement. All those are called improvements, not just maintenance.

So then if the work is being done by the body corporate as an improvement to common property, by the body corporate, being paid for by the body corporate, you’ve got your three limits there.

  • Your basic improvement limit is, where the committee can approve it, up to $300 x the number of lots. And this is subject to the committee spending limit. So remember I said the committee spending limit was $200 x the number of lots?
    • If your committee limit has been increased to $300 or above, the committee is restricted to $300 x the number of lots for improvements to common property.
    • If the committee’s limit has not been changed (so it’s $200), or it has be changed but is less than $300 per lot, they stay at that level for improvements.
  • So if it’s above this basic improvement limit, or the committee’s spending limit, then it goes to the ordinary resolution limit which is more than the basic limit (or committee limit if it hasn’t been changed) up to $2,000 times the number of lots. So that’s when the body corporate must approve or authorise the improvement by ordinary resolution.
  • As soon as it’s above $2,000 x the number of lots in the scheme it goes to a special resolution vote.

Our website explains how you count these votes very clearly but I can go through it afterwards if anyone’s unclear on counting votes we can go through that afterwards, after I’ve finished the slides.

And the big thing to note is that the body corporate is limited to only 1 ordinary resolution improvement per financial year. So if the body corporate was planning on doing a second improvement that falls within the ordinary resolution price range, they would have to either vote on it by special resolution that same year or push it to the next financial year if you wanted it by ordinary resolution. So that’s just one restriction on ordinary resolution improvements that’s in the legislation.

Spending at a general meeting

So we’ve got this really good, useful flowchart that’s on our website.

So at the top it says “is this an improvement or for maintenance?” That’s your first question on this flowchart. So going to the right there, looking at it on the screen, to the right it says maintenance. So then it’s just always an ordinary resolution as I said and 2 quotes are required if the cost is more than your major spending limit.

So back to that top point “is it an improvement?” Going to the left, then your question then is “is the cost more than $2,000 x the number of lots in the scheme?” If it’s a yes then as I said it goes to the special resolution and of course 2 quotes are required if it’s over the major spending limit.

So if it’s not more than $2,000 again down on the left where is says no – “has the body corporate authorised an improvement by ordinary resolution previously in the year?” If that’s a no on the left then you can vote by ordinary resolution for the improvement and 2 quotes again are required if it’s over your major spending limit.

But if the body corporate has approved an ordinary resolution improvement to common property during the same year then they either must wait until the next financial year or approve that decision by special resolution and of course your major spending limit applies again.

So that’s just running through that flowchart quickly. That is on our website under the page called ‘body corporate spending’. It’s very handy if you need to send it to people or refer to it.

Audits

So now we’ve talked about spending limits and that sort of thing, we’re going to move onto audits because there’s a lot of confusion with audits and so forth.

So an audit is an examination of the financial statement and records of the body corporate where an auditor provides an opinion about whether the financial statements present a true and fair view, and are in accordance with the accounting standards that they must work to as well as the legislation – so the body corporate legislation in our case.

Our office suggests that the best practice for all schemes is that an audit is done. Many schemes seem to say no to auditing because they think it’s a high cost. It should already be in your budget to cover the cost of the audit, let’s hope, so therefore it should already be not an excessive cost and it should be in your budget – you’re paying for it already. The thing to remember is the cost of getting an audit may be considered a minor expense compared to issues that may arise from not getting audits done because the audit may pick up issues that you need to address early, before they become bigger and more complicated disputes or issues. So as I said the best practice we recommend is that the body corporate does get an audit done each year.

In your Standard, Accommodation, and Commercial regulations modules, they state that the body corporate must audit the books each year. The Small Schemes Module and Two-Lot Schemes Module state that the body corporate can choose to vote to audit, so that’s the big difference. Standard, Accommodation, and Commercial – you must audit every year, that’s what the legislation says.

So for the Standard and Accommodation and Commercial modules, the body corporate then at the AGM must decide by special resolution not to audit the books. It’s assumed that you will and must audit the books so therefore you’re voting not to audit the books. It’s a reverse motion. It confuses everyone because it’s done in reverse. So because the audit is assumed that it will happen you are voting no to not auditing the books if you want an audit. So you’re saying no to not auditing the books if you want an audit to occur. So it’s the reverse of what you think you might normally vote. And everyone gets confused by that. The legislation says it’s a reverse motion – we didn’t write the legislation, we just have to tell you how it’s done.

So the body corporate can vote to appoint the auditor at the AGM. Obviously you have your motion on the agenda with the quotes attached for a qualified, independent auditor by ordinary resolution if that motion doesn’t pass not to audit – in the reverse – therefore the body corporate’s auditing, they approve and appoint the auditor at the AGM. But even if the motion decides, the body corporate decides, not to audit at the AGM, the legislation specifically states that at any time during the year by ordinary resolution at an EGM, the body corporate can appoint an auditor. So get a quote from a qualified auditor who’s independent and at any time during the year at an EGM the body corporate can audit the books, vote to audit the books.

The auditor must be qualified, as I’ve said a few times, and must also have at least 2 years’ experience and be independent of the body corporate, the body corporate manager, and the committee, and everybody.

Financial reporting

That’s auditing. So we’re moving onto financial reports required under the legislation.

The body corporate manager (in a normal section 119 Act engagement where they’re just engaged to do the administrative support for the body corporate and you have an elected committee there), if they are asked by the committee to give written report on an approved payment, they must provide the report. So that’s, for Standard Module, section 157 of the Standard Module. That’s the committee can ask that body corporate manager, or a committee member, to provide a report.

So under Standard Module only, a committee member must give a written report so for example if you don’t have a body corporate manager and your treasurer or another committee member is spending money. If there is an approved payment and you want more details about the report, the committee can ask the body corporate manager, or a committee member only in Standard Module, for a report to be done.

Reconciliation statements

So the other report that has to be done in our legislation is your reconciliation statement.

The reconciliation statement must be prepared by body corporate manager within 21 days of the last day of month. So the statement must show the payments into and from the bank account and show them reconciled with the invoices or other documents showing payments. So receipts or invoices reconciling the amounts that are moving in and out of the bank account.

Where there’s no body corporate manager, the body corporate can vote by ordinary resolution to require the treasurer to complete a reconciliation statement. However, if you don’t vote there isn’t a requirement if there’s not a body corporate manager. The big important this is – if you have a body corporate manager they’re supposed to be doing it under the legislation each month.

Definition of a body corporate debt

So now we’re moving onto body corporate debts. This is always a stressful and confusing issue so if people understand how it works and their obligations and so forth, whether owners or body corporate, it will make the process of debt recovery and so forth a lot easier for everybody.

First thing I’ll go through is the definition of a body corporate debt which often confuses people. So in the dictionary schedule in your relevant module, at the back, it states that a body corporate debt is a contribution or instalment of a contribution – so any levies that have been approved at a general meeting by ordinary resolution. If your scheme is not running correctly and has not actually had a general meeting, the annual general meeting, to approve the budget and levies and you’re trying to charge levies and owners aren’t paying them, you may have difficulty demonstrating that those levies are required. But if they’ve been approved at a general meeting, the AGM, by the body corporate those levies are required to be paid.

So a debt can also include a penalty for not paying a contribution. So penalty interest for not paying your contribution or your instalment of a contribution by the due date set in that AGM decision. So interest can be applied from the due date and it’s applied on a month by month basis.

The other thing that’s defined as part of a body corporate debt, and this is the bit that people get confused about, it states another amount associated with the ownership of the lot. So the example in the legislation includes things such as supply of service. A supply of service must be agreed on by the owner. The owner has agreed to reimburse the body corporate for the supply of service and agreed on the amount they’re reimbursing. If they fail to pay it then it can be charged as a body corporate debt. Also another example is exclusive use by-laws can charge a financial liability where the owner may have to pay the body corporate a fee (annually, quarterly, whatever) under their by-law and if they fail to pay that again that can fall under a body corporate debt.

So adjudicators’ orders have previously stated that things where the owner has not agreed to an amount may not necessarily be a body corporate debt. It may be a debt that the body corporate can claim back from the owner for something they’ve caused damage to, for example, on the common property; or something they’ve failed to maintain that caused damage to common property or something to that effect; but that type of debt does not fall under the definition of body corporate debt. So it may not fall under the same recovery process, please be clear on that.

Debt recovery authorisation

So to authorise debt recovery authorisation by the body corporate or the committee. Number 1 the owner must pay the levies in the first place. As I stated before, if the levies have been approved at a general meeting the owner is liable. While they are owner of the lot they are liable to pay those levies. It’s said in law. The body corporate cannot waive the levies.

Not paying the levies, which often owners think is a way to solve problems, will not solve the problem. It is much better for an owner to pay their levies, that have been approved at an AGM, and try and resolve the issues that they’re having with the committee, or with maintenance issues, or other issues they’re having, separately from paying their levies. Pay the levies and try and resolve the issues in another way.

It’s a requirement that the body corporate recover the owing levies within 2 years under section 145 of the Standard Module (it’s 143 in Accommodation Module). They have to commence debt recovery at any time within 2 years. At 2 years they must commence debt recovery. That’s our requirements in our legislation.

The committee can recover liquidated debts. Liquidated debts is the term the legislation uses and it is defined to mean your levies and penalty interest. So the committee, if they are voting to commence debt recovery, they are recovering levies and interest only. So please refer to your section 42 in your Standard Module and Accommodation Module – same section.

If the body corporate wants to recover the recovery costs as well, so your solicitors costs, your support costs, your debt recovery company charges, they are called a non-liquidated debt and they must be approved to be recovered by special resolution at a general meeting. And that sits in section 312 of the Act. That falls under that it is not the definition of a prescribed proceeding. It is something that the body corporate must approve at a general meeting by special resolution. Very important to understand that.

Big thing too, the body corporate manager, that last point, the body corporate manager cannot commence debt recovery without authorisation of the committee or the body corporate. If they try and take it to court and an owner finds that there is no body corporate approval for this recovery, the owner may be able to argue in court that there was no authority to do this debt recovery process and it may backfire on everybody.

Debt recovery – budget issues

Big issue with debt recovery is budget issues. So what we highly recommend as a best practice for the body corporate is the committee really should monitor those recovery costs. So they shouldn’t be just sending things off, debts off, to a solicitor or a debt recovery company and forgetting about it. They really should be keeping an eye on how much money is being accrued by that debt recovery company or solicitor because remember the courts may order that the body corporate must cover a percentage of those ‘unreasonable costs’. Okay the body corporate is only able to recover ‘reasonable recovery costs’ for the amount of the debt. So committee – keep an eye on your expenditure when you’re going to debt recovery.

The other important thing is second point there. There must be an allocation in the budget for the legal costs, the debt recovery costs. Because if the body corporate has to wear the costs, they have to be able to cover it. And it’s the administrative budget that covers it. There’s not usually a lot of flexibility in your administrative budget so you must ensure you have funding in the budget if you are going to commence legal action.

There may be the requirement for a special levy. If you are short in your administrative budget, and there’s no flexibility to adjust the budget, then a special levy is required to be raised. So that triggers a general meeting decision for the recovery of the debt and for the raising of the budget.

As I stated if the debt is over 2 years old the body corporate must recover it under our legislation. It’s 2 years requirement. But there is a statutory limitation of 6 years which sits under the Limitations of Actions Act 1974 and this was confirmed in a Court of Appeal decision just recently in this year (in 2018) for that decision there: the body corporate for Mount Saint John Industrial Park CTS v Superior Stairs & Joinery Pty Ltd. So that order came through in 2018 after there was a previous order about the 2 year limit if it hadn’t been started then the body corporate lost its chance. No it’s been confirmed that there’s this statutory limitation of 6 years as well. So for some reason the body corporate has been slack and not recovered money/debts within 2 years they still may have a little more time to commence debt recovery.

The link is there at the bottom if you want to look up that order and read that decision. So https://www.queenslandjudgments.com.au/case/id/310702.

Dealing with debt recovery

So more issues with debt recovery. So how to deal with debt recovery if you’re about to commence debt recovery. As I stated the committee can approve, if an owner seeks approval for the waiving of interest or recovery costs, or allowing a discount back, the committee can approve the waiving of interest or recovery costs, or allow a discount back if the owner can demonstrate special reasons. So this is section 145 of the Standard Module (or 143 of Accommodation Module for example).

It is up to the owner to demonstrate to the committee what their special reasons are for why the body corporate should waive or allow the discount back. Please be clear – the committee or body corporate cannot waive levies, they are a statutory requirement for an owner to pay levies. So the committee can only waive interest, recovery costs, or allow a discount back.

So that second point. The committee must act reasonably and consider each case individually. Section 94 of the Act states that the body corporate must act reasonably when making a decision. So for example, an owner with a perfect record of paying levies and they’ve never been late, has some horrible, special reason, maybe gone to hospital, lost a job, whatever their reasons are for being late, and they’ve written to the body corporate saying “I’m going to be late would you please allow my discount back and not charge me interest?” The committee should act reasonably when considering that person versus and owner for example who is constantly late and trying to ask for interest to be reimbursed or allowed back. The committee could make a reasonable decision maybe not to allow that in those circumstances. It’s dependent on circumstances and that the committee can demonstrate they’re acting reasonably.

So if a debt collector is involved, we often get told that owners are told by body corporate managers or committees that they can’t talk to the body corporate directly about their debt issue. That is completely incorrect. The debt recovery agency or solicitor or whoever is collecting the debt is not the decision maker. The body corporate still has to make the decision to either waive interest, allow discounts back, or waive recovery costs, and can also make the decision to stop the action completely. The owner has to go to the body corporate for that so they still should be able to write to the body corporate if there is a debt involved. You cannot block them from talking to the committee or the committee refusing to make a decision if it’s in debt recovery.

The body corporate can’t delegate any decision making authority under section 97 of the Act. So that’s a very important thing. So they can’t say that the solicitor can make those decisions or the body corporate manager can make those decisions. The committee or the body corporate itself must be making those decisions.

Debt recovery disputes

So debt recovery disputes. This is always a topic of interest because we have a lot of people ringing up about debt issues because sometimes times are tough and people get behind in their levies.

So to make things clear, anything this is defined as a body corporate debt under that definition that I started off with a few slides ago, if it’s a body corporate debt or a related matter it cannot be heard by adjudicator while the debt is in existence. And that’s section 229A(3) of the Act.

So debt disputes can come to conciliation if the body corporate has not commenced a proceeding in court or QCAT or another jurisdiction for the recovery of the debt. So our office here can assist with conciliation for a decision where, for example, the committee said no to waiving interest as long as the courts are not commencing the proceeding.

So if a proceeding has commenced, we then cannot accept an application for conciliation. So if you lodge an application and then the court proceeding commences, we then may have to reject an application that’s come through. We are not able to accept applications if the court proceeding has commenced.

However, if the debt has been paid and cleared, so all costs involved with the debt, and there has been no court order made about that amount, an owner can still dispute the reasonableness of interest being charged, recovery costs, or discounts not being allowed back. So if there is no debt and they’ve paid the full debt and there’s no court order, that’s where they can come through our conciliation and potentially go to adjudication to seek a decision based on reasonableness of the decision of the body corporate.

Payment of body corporate debts

So this is another issue – when an owner pays their levies and they have a debt, how is it allocated to their owing amounts? People get confused about this all the time. Make it very clear to all your owners, if there’s someone in debt explain to them how the amounts they’re paying are being assigned to the amounts that are owed.

So they’re charged firstly towards any interest that is charged. So if they’re paying their normal levy amount, and they have not paid extra, firstly that amount goes to the interest. Then any leftover amounts go towards the actual contribution levy. And finally if there’s enough money left from the amount they’re paying the amount has to be applied to any recovery costs for the debt.

So then if an owner pays a levy, it will be allocated to the interest charges first and the owner may well still owe a portion of that levy that was due and of course if that then falls behind, they’re still in debt and more interest will occur and potentially recovery costs can occur and so forth. So the problem is an owner can find it very hard to catch up on the amounts if they haven’t paid enough money to cover the interest and the recovery costs and their levy.

So remember that owing levies attach to the lot, not the lot owner. Unless the court has made an order that that owner is responsible for the debt as an individual person, the debt sticks with the lot so the debt will transfer with the lot making a new owner then liable for that debt at the sale of the lot. So usually there’s an adjustment amount to do with settlement at the sale of the lot.

Contact us

So that’s the end of all the slides. That’s our contact number there and you can see the online enquiry ‘ask a body corporate question’ link, it is also on our website. Our website address is there. You can search previous adjudicators’ orders if you need to through the AUSTLII website. Thank you very much.

Last updated:
26 April 2019
Share this page: