The timely payment of contributions and service charges by each owner is essential for the ongoing operation of a body corporate. Regardless of an individual’s personal or financial circumstances, it really is unfair on all other owners if one owner does not pay on time (and in full) any amounts owed. The paying owners end up subsidising the non-payers.

As you would expect, Body Corporate legislation contains quite a bit about levies and options to entice timely payments. If you want to know the essential rules then read on.

Incentivising and disincentivising

To make sure people have an incentive to pay, or a consequence if they don’t, a body corporate can resolve to give a discount of no more than 20% to owners if their payment is received by the due date stated on the contribution notice.

The body corporate can also resolve to charge penalty interest (of no more than 2.5% per month – equating to 30% per annum) for contributions or instalments that are in arrears.

Both of these resolutions need to happen at a general meeting, and without them, the amounts owed are just what they are without discount or penalty.

When does penalty interest start accruing?

It is entirely a matter for a body corporate to determine at general meeting how much, and how often contributions will fall due and how penalties will be calculated. Each body corporate can set its own rules inside the statutory parameters. The wording of any resolution is all important.

As examples

• In The Reserve [2015] QBCCMCmr 353, an adjudicator noted that additional charges could not be penalty interest because “it is charged at the rate of 2.5% per month on the outstanding amount. The contribution was outstanding for a period of 18 days, less than one month.”
• Conversely, in Seabay [2006] QBCCMCmr 644, an adjudicator provided that “The EGM resolution of 22 November 2000 provides for a lesser amount that being that interest is pro rata for a period less than a month. On that basis, and by my calculations, the applicant would owe $61.15 interest for March and $36.69 interest for part of April (60% of the full monthly rate).”

Does a body corporate have to sue to recover outstanding levies?

Yes. It is incredibly rare to have a piece of legislation actually require the institution of proceedings, but the Body Corprorate and Community Management Act does. A body corporate must start proceedings to recover levies if they have not been paid within 2 years and 2 months of the amount falling due.

Can a body corporate waive levies?

We think not. If they are struck they are payable. Waiving levies for some lots means the levy burden simply has to fall to the other lot owners. An issue that is unique, and we find more in schemes with lots of smaller value, is the ‘zombie’ lot. This is where an owner is insolvent and has not paid levies for some time. Inevitably they will also not have paid their local authority rates or mortgager during the same period. That can mean the amounts owed on the lot are collectively worth more than the lot itself. This can become particularly ugly.

Can a body corporate allow a discount or waive penalty interest on late payments?

Yes, provided there are special reasons for doing so.

In Seabreeze Estate [2016] QBCCMCmr 427, an owner was 12 days’ late in paying as he was unexpectedly hospitalised for emergency surgery from just before the due date and remained under heavy sedation and pain medication until the day before the levies were paid.

In an application by the owner to be reimbursed the discount, the adjudicator relevantly stated:

“I do not see that this is an objectively reasonable basis for the committee to refuse to recognise that this medical emergency constituted special reasons for allowing a discount pursuant to section 145(6) of the Standard Module… Given that section 145(6) only applies where there are special reasons, it is difficult to see how it would dilute the strength of the incentive for on-time payment anyway. Other owners are unlikely to contrive to suffer a bowel obstruction so they might pay a little later without financial penalty. The term ‘special reasons’ ensures that the section only applies in exceptional circumstances.”

In Whitsunday Terraces [2010] QBCCMCmr 192, the non-receipt of a levy notice was deemed to constitute special reasons for late payment and the decision of a committee to not allow the discount was unreasonable:

“Given the applicant’s payment history and detailed record keeping I find that his recollection of events is credible and it is probable that the late payment of levies on 29 September 2009 was attributable to the non-receipt of the ‘Notice of Contributions’. Given the non-receipt of the above notice and the willingness of the body corporate to grant a levy discount to other lot owners, it is understandable that the applicant believes that the refusal to afford him a ‘timely payment discount’ was unreasonable in the circumstances.

The body corporate has a discretion to allow a discount in whole or part, if satisfied there are special reasons for doing so. An objective review of the evidence indicates that apart from the one instance under consideration, the applicant has always paid levies on or before the due date. In my view, the circumstances outlined by the Applicant constitute ‘special reasons’ for which the body corporate should have, if it were acting reasonably, allowed the discount on the levies due on 1 August 2009.”

Other special reasons have included a body corporate computer error and payment arriving one day late through no fault of the owner.

Recovery costs

In addition to penalty interest and discounts, a body corporate will almost always incur recovery costs pursuing unpaid levies (e.g. legal and administrative fees). Reasonable recovery costs are also payable by the lot owner. This was confirmed in Westpac Banking Corporation v Body Corporate for the Wave Community Title Scheme 36237 [2014] QCA 73, where the body corporate incurred hundreds of thousands of dollars in legal fees pursuing unpaid levies which were all ultimately payable by the owner (we wrote more about this case here).

The realities

If levies are struck they are almost certainly going to be payable. So, for owners:

• Putting heads in the sand with respect to non-payment is pointless. The day will eventually come where it needs to be dealt with.
• If you cannot make payment, engage with the committee or body corporate manager early and arrange a payment plan. That saves nasty legal letters and so on.
• If you want to argue components of what is owed, it is easier to pay first and then seek reimbursement later via an order from the Commissioner’s Office. That at least gets the dispute dealt with and then you can deal with the matters of principle / law later.

For bodies corporate:

• Putting collective heads in the sand with respect to non-payment is pointless. The day will eventually come where unpaid levies need to be dealt with.
• Engage with owners who have not paid before you call in the lawyers. Reach out. Make a phone call. Make sure the owners contact details are all correct and the owner knows what they owe. Agree on a payment plan if payment cannot be made in full.

This article was contributed by Myles Holley, Lawyer – Hynes Legal

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