Commissioners Corner: Financial Management Part 1
Tuesday February 12th, 2019
Let's talk about money.
It’s a subject everyone has an opinion on, and this is also true about finances in the body corporate context.
While the Body Corporate and Community Management Act 1997 (the Act) and its Regulation Modules are prescriptive about the process for collecting and then spending body corporate funds, I know that there remains uncertainty in the sector about some of these financial issues.
In this series of articles, I will address several body corporate financial issues that are common sources of enquiry to my office. In this first part, I will begin by talking a bit philosophically – why is there a requirement for owners to pay ongoing levies and what are these meant to be used for anyway?
While a body corporate is not a commercial entity, it does have day-to-day operational needs. Bills need to be paid. Services such as repairs and insurance that have been engaged and then carried out need to have money to cover them. This is why the Act requires the setting of budgets and, stemming from that, the payment of levies by owners.
To put it more simply, owners’ levies pay for the body corporate to fulfil its obligations – which are, of course, the owners’ obligations at the end of the day.
I don’t know of anyone who enjoys paying bills and especially regular, recurrent bills. That said, it is a fact of life that some things require an ongoing commitment of finances and when someone is an owner of a lot in a community title scheme, their commitment includes paying levies.
Let’s address a few common misconceptions about levies:
At the risk of stating the obvious, levies are due…when they are due. While it is commonplace for a levy notice to be sent out in advance of the due date – as is the case with most other bills we pay in life – it remains the owner’s responsibility to pay by the due date. Saying “I didn’t get a reminder notice” or “The notice didn’t go to the correct address” is not necessarily a defence for not having paid on time. To be clear, levies are set at the annual general meeting, which means the minutes will reflect both what levies are payable and when.
There is no connection in the Act between payment of levies and some other action. For example, there is no provision in body corporate legislation that says an owner can withhold their levy payment until the body corporate approves their request or enforces its by-laws. Nor is there any legislative basis for a lot owner to say, “Well my neighbour hasn’t paid their levies, so I’m not going to either.”
There is nothing in the Act or the Regulation Modules which provides an automatic entitlement for either a discount for early or on-time payment of levies, or which compels the body corporate to enter into a payment plan with an owner. While a body corporate and owners can enter into these sorts of arrangements – and indeed, they are fairly commonplace – it is not as of right.
Apart from these misconceptions, perhaps the most important consequence of non-payment of levies is that it may prevent an owner from voting at general meetings. Even being a few dollars short on one’s account can leave an owner “unfinancial” and this means they may not get to vote on motions which would have a direct impact upon them.
It is a daily occurrence that my office hears from lot owners who believe they shouldn’t have to pay a body corporate debt of some kind and who are firmly of the belief they are “in the right” about their reasons for not paying.
I’m certainly not going to tell anyone that their strongly-held reasons are misguided or wrong and neither do I hold any policing powers to compel owners to pay. That said, the point both I and my team always make is that in our view, you are far better off to pay the debt, become financial and thus, exercise your voting rights – then, if you still feel the need to, look at following up later on the disputed amount.
One thing that might be difficult to predict and manage is financial difficulty and hardship. Sometimes, these things happen with no warning and despite the best of intentions, an owner may simply just not have the money to pay their levies.
From the owner’s perspective, there are some critical points about this to bear in mind. The key things in my view are to be as open about it as possible, as early as possible. I appreciate that it is very confronting to have to put one’s hand up to say that you are experiencing tough financial times and can’t pay. While there isn’t a need to divulge your full financial position to the world, a general discussion about it can make a significant difference.
For example, if you know that in a month’s time, when your levies will be due, that you won’t be able to pay some or all of the levy, then that is the time to start the discussion with your body corporate about it – not, for example, the day or week after the due date. Early discussion about financial circumstances demonstrates good faith on the part of the owner. If there are particular circumstances at play then it might be a good idea to mention those. An example might be if an owner is experiencing a medical condition which is making it impossible for them to earn an income or the same income they once were earning.
Another way of demonstrating good faith is an undertaking to pay at least some of the levy. A small amount may seem token but in the long run it may demonstrate your willingness to meet your financial obligations which in turn may make the body corporate more willing to make an allowance for you and your financial circumstances.
Up to this point my focus has been on lot owners and their responsibilities in relation to payment of levies. In part two of this series, I will focus on the responsibilities of the body corporate and its committee to be responsible and accountable for how they spend body corporate funds.
For further information please contact the Information and Community Engagement Unit of my Office on 1800 060 119 or visit our website www.qld.gov.au/bodycorporate.
This article was contributed by Chris Irons, Commissioner for Body Corporate and Community Management.