Strata Debts: Pay Now, Argue Later

Thursday May 24th, 2018

The two most common defences I see in levy recovery actions are:

  1. I have told the committee that I can’t afford the levies, so they are being unreasonable by not letting me pay them off at $10 a week for the next 7 years (the “you can’t get blood out of a stone” defence).
  2. I disagree with just about everything the body corporate has ever done, so I refuse to pay money to those terrible people (the “I can do it much better than you” defence).

The first defence can often be dealt with quickly and cost-effectively by educating the owner about why the levies should not be at the bottom of their list of financial priorities, what penalty interest is, and guiding them towards a financial planner.

The second type of defence also leads to an educational experience for the indebted owner; and one that may be far more expensive to them than what they could pay an Ivy League School for.

There are consequences

Some of the first learning experiences for that indebted owner will come when they:

  • receive their AGM notice only to discover that their name is not on the ballot for a committee position; or
  • discover that their vote on the AGM motions will not be, or was not, counted.

They cannot participate in these governance activities because they owe a body corporate debt, so they:

  • are not eligible to be a voting committee member, or to nominate someone else for the position; and
  • cannot vote on any motion considered at a general meeting, unless it needs to pass by resolution without dissent.

What is a body corporate debt?

A body corporate debt is (a) a contribution, (b) a penalty for not paying the contribution (penalty interest), or (c) another amount associated with the ownership of the lot.

This latter category has a wide net and can include:

  • any costs reasonably incurred by the body corporate in recovering unpaid levies / contributions and penalty interest (recovery costs);
  • payments owed by an owner under an exclusive use by-law;
    • the cost of services arranged by the body corporate for the owner under a services / supply agreement[1]; and
    • in some circumstances, the reasonable cost of work carried out by a body corporate that was required of an owner under the BCCM Act, by-laws, or by order of an adjudicator, QCAT or court.
  • What generally is not included in this latter category and is often incorrectly treated as a body corporate debt includes:
    • false fire alarm charges billed to the body corporate, which the committee attributes to something that has happened in a lot (ie burnt toast) – the body corporate may have a right to sue the occupier or owner for those charges, but they are not a body corporate debt for the purposes of the BCCM Act;
    • the costs incurred in issuing by-law contravention notices; and
    • legal costs the body corporate has incurred in taking advice on a complaint raised by an owner.

The simplest way to distinguish between these two types of costs is that the BCCM Act must establish the owner’s liability to pay the costs for them to be a body corporate debt.

Recovery costs

There is a misconception that a recovery cost is not a body corporate debt. It is a misconception because it is wrong. Queensland’s Court of Appeal has held that recovery costs are associated with the ownership of the lot, so they are a body corporate debt.[2]

The next misconception is that the body corporate has no right to those recovery costs until a court or tribunal finds that they are reasonable and orders them to be paid. That too is wrong based on how case law has developed.[3]

Often, the only body corporate debt will be a recovery cost the owner steadfastly refuses to pay. The owner may say the cost is excessive, the committee should not have referred the recovery action to lawyers, or the body corporate manager is just trying to charge unnecessary fees.

The reality is that the argument would not be necessary if the owner paid what was owed to the body corporate in a timely manner. It may seem to some that this is unfair to owners, and that they are up against a draconian system. That much as been consistently acknowledged by Queensland’s Courts when they have ordered lot owners to pay recovery costs:

[1] For example, an agreement made under section 169 of the Standard Module / section 167 of the Accommodation Module.

[2] Westpac Banking Corporation v Body Corporate for the Wave Community Title Scheme 36237 [2014] QCA 73 at [4] and [61]

[3] The Body Corporate for 399 Woolcock Street CTS 34700 v Sexton & Ords [2013] QCATA 55 at [11]-[17].

  • Contributions are the lifeblood of a body corporate in much the same way as taxes are the lifeblood of the state. Just as legislatures have imposed special regimes restricting the capacity of taxpayers to delay their liability to pay tax by arguing about it, and otherwise limiting such disputes, it may be unsurprising if the legislature were to impose a regime which would provide particularly favourable treatment for recovering body corporate contributions, including legal costs incurred in the process.[1]
  • The body corporate depends on each lot owner making its payment of the contributions reflecting the proportionate share of the body corporate’s projected expenditures, so that the body corporate meets those expenditures. Ultimately, it is the other lot owners who are meeting their share of the expenditures who will be disadvantaged by the non-payment by one lot owner of that lot owner’s contributions.[2]
  • “It is clearly vital in modern social conditions to have rather draconian measures in place to ensure prompt payment of body corporate levies for the efficient operation of body corporates and indeed, the peace of mind of lot owners in them whose lives will be a misery if they cannot rely on their fellow owners to get the body corporate in funds to enable it to attend to its responsibilities.”[3]

The ‘surprise’ body corporate debt

The inability to participate in the governance of the body corporate by being on the committee or voting in general meetings is a real cause for concern for some owners. But the legislation rightly excludes those who are unwilling or unable to help fund the body corporate from having a say in how that body corporate should run.

The potential for it to be applied unfairly arises when an owner is surprised to learn they owe a body corporate debt. Such a situation was reported in Noosa Lakes Resort [2015] QBCCMCmr 84 at [15]-[16] when an owner’s voting paper was disallowed because they owed $33 for an arrears notice fee charged two months before the AGM.

Any owner concerned at the prospect of receiving such a surprise should check there are no arrears at the time they submit a nomination for a committee position or exercise a vote at a general meeting. Problems arise if the owner discovers they owe a debt on the day of the general meeting. Adjudicators have consistently held that:

  • payment of a debt can be tendered at a general meeting[4]; and
  • payment can be tendered by cheque but the votes should be recount if the cheque does not clear.[5]

[1] Body Corporate for Sunseeker Apartments CTS 618 v Jasen [2012] QDC 51 at 26.

[2] Westpac Banking Corporation v Body Corporate for the Wave Community Title Scheme 36237 [2014] QCA 73 at 59.

[3] Prins v The Body Corporate for the Wave [2013] QDC 066.

[4] Orchid Park [2014] QBCCMCmr 2.

[5] Signature Waterfront Apartments [2011] QBCCMCmr 384 at [27]-[28]. The complicating effects of paying by cheque are obvious. A body corporate could explore implementing a by-law to limit when payments by cheque can be made.

Why you should pay now and argue later

So let’s get back to the “I can do much better than you” defence.

These owners may find themselves in a bad (even financially-ruinous) situation because they want to “argue now, pay later”. That is not how the levy and recovery system works in Queensland. The system:

  • requires owners to pay their levied contributions as soon as they are due;
  • imposes significant consequences if the levies are not paid on time; and
  • provides a specialist, cost-effective and accessible service overseen by the Commissioner for Body Corporate and Community Management to resolve other disputes that are not related to the debt.

If you are an owner who disagrees with something the body corporate has done and finds it unpalatable to pay the levies that have just arrived – pay them and then contact your strata manager, the Commissioner’s Office or a lawyer to discuss how your separate dispute could be resolved.

You should not assume that your refusal to pay a body corporate debt gives you some leverage. You may come to learn the hard way why the levy recovery system is known for its “draconian measures”.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

This article was contributed by Jason Carlson – Partner, Grace Lawyers.