Strata Communication: A Guide to Privacy, Confidentiality & Records Access

Introduction

The financial health of an owners corporation depends on every lot owner meeting their legal obligation to pay strata levies on time. These contributions are essential for funding the maintenance, insurance, and administrative services for the entire stratum. When even one lot owner falls into arrears, the unpaid levies can create a significant financial strain on the body corporate, potentially delaying essential repairs and placing an unfair burden on compliant owners.

For an owners corporation facing these challenges, a clear understanding of the debt recovery process is essential to protect its financial stability and the interests of paid-up members. This guide outlines the procedures for strata levy recovery and associated legal costs in NSW. Due to the complexities of strata law and potential strata disputes, engaging a strata lawyer is a critical step to ensure the debt collection process is both compliant and effective.

Understanding the Impact of Levy Arrears on Your Owners Corporation

Financial Strain on the Administrative & Sinking Funds

When a lot owner fails to pay their strata levies, it directly impacts the financial health of the entire owners corporation. These contributions are divided between an administrative fund for day-to-day expenses and a sinking fund for long-term capital works.

Levy arrears create a deficit in the budget, which can have serious consequences for the property. This financial shortfall can disrupt the smooth operation of the strata scheme in several ways:

Consequence	Description
Delayed Maintenance	Important repairs and routine maintenance may be postponed, risking property disrepair and diminished value.
Inability to Pay Contractors	The owners corporation may be unable to pay for essential services from cleaners, gardeners, plumbers, and electricians.
Insurance Risks	There may be insufficient funds to cover crucial building insurance premiums, placing the property and all owners at risk.
Hindered Debt Recovery	A lack of funds can prevent the body corporate from engaging a strata lawyer to begin the debt recovery process.

The Burden on Compliant Lot Owners

The failure of one lot owner to meet their obligation to pay levies places an unfair financial strain on the other owners. The costs of running the building do not decrease, meaning the shortfall must be covered by those who consistently pay on time.

This situation can force the body corporate to:

• Raise higher levies, or
• Issue special levies to ensure essential services continue.

Beyond the direct financial impact, unpaid levies create other burdens for compliant owners. The situation often causes friction and negative sentiment among neighbours, damaging the community atmosphere.

Furthermore, an owner with levy arrears is deemed “unfinancial” and loses their right to vote on most matters. This can disrupt governance and place a greater decision-making load on the remaining owners.

The Body Corporate Debt Collection Process & Recovering Outstanding Levies

Issuing Notices & Letters of Demand

The debt recovery process for unpaid strata levies begins with formal communication. An owners corporation must first issue a compliant levy notice to the lot owner, providing at least 30 days’ written notice before the payment is due.

If a lot owner fails to pay by the due date, the body corporate will typically send an overdue reminder letter as an initial follow-up.

Should the arrears persist, the next step often involves engaging a strata lawyer to issue a formal letter of demand. This is a crucial and often effective tool, as it:

Function of a Letter of Demand	Explanation
Formal Notification	Officially notifies the lot owner of the specific outstanding debt owed to the owners corporation.
Signal of Intent	Clearly signals the owners corporation’s intention to commence legal action if the debt is not settled.
Notice of Costs	Puts the owner on notice that they will be held responsible for any legal costs reasonably incurred in the recovery proces

This formal notice often prompts payment before the matter escalates to court.

Payment Plans & Hardship Arrangements

As an alternative to immediate litigation, an owners corporation can consider entering into a payment plan with a lot owner experiencing genuine financial hardship. A lot owner can formally request a payment arrangement from the strata committee, explaining their circumstances and proposing a schedule to repay the overdue levies in instalments over an agreed timeframe.

While considering such requests, the body corporate is not typically obligated to accept a payment plan or waive interest on the arrears. However, it provides a practical way to recover the funds without legal action.

In NSW, the owners corporation must consider any reasonable request for a payment plan. If approved, the arrangement allows the lot owner to clear their debt over time while ensuring the body corporate eventually recovers the outstanding contributions.

Commencing Legal Proceedings & Obtaining Judgment

If a lot owner continues to ignore notices and does not enter into a payment plan, the owners corporation may have no choice but to commence legal proceedings. The process starts with filing a statement of claim in a court or tribunal with the appropriate jurisdiction.

After the documents are served, the lot owner has a specific timeframe, typically 28 days, to either pay the debt and associated legal costs or file a defence.

If the lot owner fails to respond, the owners corporation can apply for a default judgment. This is a formal court order confirming the debt is owed and is legally enforceable.

Once judgment is obtained, the body corporate has several enforcement options to recover the unpaid levies, including:

• A garnishee order to redirect funds from the owner’s wages or bank account.
• A writ for levy of property, which can lead to the seizure and sale of the owner’s lot to satisfy the debt.
• Commencing bankruptcy proceedings against an individual or winding up proceedings against a company.

Recovering Legal Costs & Interest from the Defaulting Lot Owner

Charging Interest on Overdue Strata Levies

When a lot owner fails to pay their levies on time, the owners corporation is entitled to charge interest on the unpaid amount. In NSW, Section 85 of the Strata Schemes Management Act 2015 (NSW) sets the maximum interest rate at 10% per annum.

This charge serves two main purposes:

• It compensates the body corporate for the financial disruption caused by the delay.
• It encourages prompt payment from all owners.

The application of interest is a standard procedure for managing levy arrears. While an owners corporation can hold a general meeting and pass a special resolution to waive or reduce the interest, it is important to note that this is a statutory right designed to protect the scheme’s cash flow. This ensures that other owners are not disadvantaged by the late payment of strata levies.

Placing Recovery Costs on the Owner Ledger

An owners corporation can add reasonable legal fees and other debt recovery expenses directly to a defaulting lot owner’s ledger as soon as the costs are incurred, without needing to wait for a court order. This practice was affirmed in the NSW Civil and Administrative Tribunal (NCAT) case of Oliveira v The Owners – Strata Plan No 74698.

The owner ledger functions as a summary of transactions. Including these costs ensures a clear record of the total debt. If a lot owner disputes the reasonableness of the charges, the matter may proceed to a strata dispute in NCAT for a determination.

It is important that any payments made by the owner are allocated correctly:

• First to outstanding levies
• Then to costs, unless the owner specifies otherwise

Consulting a strata lawyer is advisable to ensure this process is handled correctly.

Section 86(2A) & Recoverable Expenses

The legal basis for recovering these expenses is found in Section 86(2A) of the Strata Schemes Management Act 2015 (NSW). This provision states that an owners corporation can recover an unpaid contribution along with any interest and the “reasonable expenses” incurred in recovering the debt. These expenses become part of the total amount owed by the lot owner.

This means that the costs associated with the debt recovery process are payable by the defaulting owner from the moment they are incurred by the body corporate.

To ensure that all recovery costs are considered “reasonably incurred,” it is beneficial to engage a strata lawyer. A lawyer can provide guidance throughout the process, ensuring that all actions taken are appropriate and that the associated legal costs are justifiable and recoverable.

Legal Mechanisms for Protecting Paid-up Owners During Litigation

Seeking Orders to Exclude Lots from Levy Contributions

When a lot owner is involved in litigation with their owners corporation, an unfair situation can arise. Even if the lot owner is successful in their claim, they may still be required to contribute, through their regular strata levies, to the legal costs incurred by the body corporate in that same dispute.

This means the successful owner effectively pays a portion of the opposition’s legal expenses. To prevent this, the Strata Schemes Management Act 2015 (NSW) provides a crucial protection:

• A Court or the NCAT can issue an order specifying that any amounts payable by the owners corporation for the debt or legal costs must be paid from contributions levied only on particular lots.
• It is essential to make an application for such an order during the proceedings to ensure a successful lot owner is excluded from contributing to these costs.

Engaging a strata lawyer is important to ensure this application is handled correctly.

Differential Contributions Based on Lot Use

The legal framework also allows for fairness in how levy contributions are distributed among lot owners, particularly when one lot’s use creates higher expenses for the entire stratum.

For example:

• If the specific use of a particular lot causes an increase in the insurance premiums for the whole strata scheme, an order can be made for that lot owner to pay a larger contribution to cover the additional cost.
• This ensures that the financial burden is fairly allocated to the lot owner responsible for the increased expense, rather than being shared equally among all owners.

This mechanism helps prevent strata disputes by ensuring that contributions reflect the actual costs associated with each lot’s use. In this way, it protects other owners from unfairly subsidising higher-risk activities within the body corporate.

The Importance of Engaging a Strata Lawyer for Your Debt Recovery

Ensuring Costs are Reasonable & Authorised

To recover legal costs from a defaulting lot owner, an owners corporation must ensure the expenses are “reasonably incurred.” A strata lawyer plays a crucial role by:

• Advising the body corporate on what actions are appropriate and justifiable, ensuring that all costs associated with the debt recovery process are recoverable.
• Providing guidance that helps prevent disputes over the reasonableness of fees later on.

Furthermore, specific legal procedures must be followed to authorise legal action. In NSW, if the estimated costs for legal work exceed certain thresholds, the owners corporation is required to:

• Call a general meeting.
• Pass a resolution to approve the legal proceedings.

A lawyer ensures these statutory requirements are met, protecting the body corporate from procedural errors that could jeopardise the recovery of legal costs.

Strategic Advice on Enforcement Options

Once a court judgment is obtained against a lot owner for unpaid levies, a strata lawyer provides essential strategic advice on the most effective enforcement methods. The choice of action depends heavily on the debtor’s financial circumstances and assets.

A lawyer will help the owners corporation assess the viability of different enforcement paths, which may include:

Enforcement Option	Description & Strategic Considerations
Writ for Levy of Property	Can lead to the sale of the lot owner’s property to satisfy the debt. It is a complex process and may only be available if the judgment exceeds a certain amount.
Garnishee Order	Directs a third party, such as an employer or bank, to redirect funds from the owner’s wages or accounts to the owners corporation.
Bankruptcy Proceedings	An option typically worthwhile only if the lot owner has significant equity in their property, as the owners corporation is an unsecured creditor behind secured creditors like banks.
Winding Up Proceedings	If the lot owner is a company, this process can be initiated to liquidate the company’s assets and recover the outstanding body corporate levies.

Conclusion

Effectively managing unpaid strata levies is crucial for maintaining the financial health of an owners corporation and ensuring fairness for all lot owners who meet their obligation to pay. A clear understanding of the debt recovery process, from issuing notices to commencing legal action and recovering all associated legal costs, protects the interests of the entire stratum.

If your owners corporation is dealing with levy arrears or complex strata disputes in NSW, it is essential to seek professional guidance. For trusted expertise and assistance with your debt recovery, contact the specialised strata lawyers at PBL Law Group today to ensure your body corporate’s financial interests are protected.

Frequently Asked Questions