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Is your body corporate slowly becoming unfinancial?

By Frank Higginson28 Jul 2011

As we talk to our clients in the strata management industry, we are hearing more and more stories about increasing levy arrears.

Body corporate levies are quite often one of the easiest things not to pay. There is no tradesperson at the other end waiting for a cheque needing to make ends meet. There is almost no phone follow up on unpaid levies. In addition, some committees take a very lax approach to financial management, delegating that to their strata manager, or letting it simply slide.

One or two lots in arrears might not have much impact on a body corporate. It certainly changes the position when up to 10% of lot owners (or more) are in arrears.

A body corporate is not a creature that has much financial flexibility. The administrative fund budget is set based on what must be paid over the coming year and there is usually no margin for error built into it. So when a number of owners are late with the payment of their levies, a body corporate can become financially hamstrung very quickly, and in a position where it cannot meet its financial commitments.

There is a statutory provision requiring a body corporate to commence proceedings for the recovery of levies within two years and two months of the date they fell due. If every body corporate took this long to commence proceedings, we would effectively have a state of insolvent bodies corporate on our hands.

It is incumbent on committees to act reasonably. In our view, short of there being some very good reason to do so, it is not reasonable for a committee to allow a late payer to drag their levies out for even so long as 12 months without some form of payment plan over the arrears being reached.

If a body corporate cannot meet its financial responsibilities, it needs to strike a special levy to deal with the shortfall. If the scale of levy arrears is as large as it seems it might be, there is more than likely going to need to be some special levies raised against bodies corporate to ensure that the bodies corporate remain financially solvent.

It is hardly equitable for a majority of owners to have to contribute further monies from their own pocket to meet the financial responsibilities of a minority.

Whilst this is not advocating a ‘scorched earth’ policy on levy recoveries, we believe it is incumbent on each committee to take a greater degree of interest in the financial position of their body corporate, and where there are issues, to address them in a reasonable way.

Naturally, we can assist with the range of options that are available in a very cost effective manner.