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Outstanding body corporate levies

By Frank Higginson01 May 2009

It is said that one of the first things that people don’t pay when times are tough is their body corporate levies. From discussions we have had with various body corporate managers, it does appear that body corporate levy arrears are growing gradually.

This places the body corporate in a difficult position, as it is not simple to raise additional funds to cover what the arrears should have been used to pay. Purely from a body corporate management perspective, one of the key elements is taking control of the financial management. At the very minimum body corporate managers need to have their finger on the pulse of the financial health of each body corporate they manage.

Knowing where arrears are at, and how they should be dealt with, is very important.

A body corporate levy is an almost impossible invoice to contest, so enforcing payment should not be a difficult issue, but it seems the legal position remains somewhat misunderstood.

Some common questions that seem to keep cropping up are:

  • A body corporate has a statutory obligation to commence proceedings to recover levies within two years and two months of that levy falling due. Commencement of these proceedings is not a restricted issue.
  • The recovery process is essentially a matter of timing. There is no real ability for an owner to contest the amount of the levy payable, although those familiar with the recent Liberty appeal decision know that additional recovery costs can be recovered with an order of a court.
  • If judgment is obtained, and followed through, the matter can end up being resolved by a writ of execution, which means the court will arrange an auction for the property via a bailiff. This will usually only occur when a property is not mortgaged.
  • Where a property is mortgaged, it would be normal for the mortgagee to step in to take control of the sale process when levies have not been paid and the body corporate is looking to sell the property. Failure to pay body corporate levies will almost certainly be a breach of the terms of the mortgage.
  • Irrespective of which way a sale eventuates, body corporate levies (along with other statutory charges like rates and land tax) will almost certainly be paid at settlement in priority to other external payments, including the mortgagee. We are yet to see a mortgagee sale contract that does not provide for clear title on settlement – which extends to any arrears for charges.
  • If that leaves the mortgagee short of the amount owing under their mortgage, they will then pursue the borrower separately for the balance owing.

Whilst it may not be cost effective to engage lawyers at the initial stages of a claim, we have been engaged recently in a number of matters in enforcing payment of levies after judgment was obtained. Each one has been successful.