Government announcement: COVID-19 strata regulations
By Frank Higginson20 May 2020
Click here for the PDF version.
The starting point is that all of this is only temporary. These amendments commence on a date to be determined (but likely to be very soon) and expire on 31 December 2020. For the purposes of this article we will talk about that as being the COVID period.
The key term is ‘financial year’. Every body corporate has a financial year-end that usually ties back to when it was first registered. A body corporate’s financial year is not necessarily the tax year ending 30 June. The quickest way to check is go to your last year’s AGM papers. The budget will be drafted through to the end of your body corporate's financial year.
These regulations do not address electronic voting. That may still become law via the previous strata law reform that was underway before COVID-19, but who knows?
What this bill deals with, and what it means for owners, committees, managers and others, is as follows:
Reducing sinking fund budgets (and therefore, sinking fund levies)
A body corporate can, by ordinary resolution, adjust the sinking fund budget to remove some or all anticipated major expenditure for the current or future financial years. If it does that, and amounts have already been paid by owners towards that budgeted amount, then the body corporate must – and it is definitely ‘must’, not ‘may’ – refund to owners the amount already paid on account of that element.
A simple example might be that a scheme needs painting and $400,000 has been budgeted to be collected, with some collected to date and the rest to come. That line item can now, if agreed by ordinary resolution, be removed from the budget.
If it is removed, any amounts paid by owners towards that item as part of their sinking fund levies needs to be refunded to them. The new laws also make clear that an owner doesn’t have to request that refund in writing, which is important for committees to keep in mind.
Come 1 January 2021, that amount will then need to go back into the next budget and be levied against all owners to catch up. So, what this would do is provide some financial relief at the moment, until the amount is required to be built back into the budget. In other words, don’t go rushing towards this option as a Hail Mary solution. It really is only a short-term fix.
Logistically we suspect it might be quite an exercise for those without sophisticated sinking fund forecasts to determine what can be cut and what has to be refunded.
Changing due dates for levies
Committees can change the due dates for payments of levies to the last day of the body corporate’s financial year. This can be selectively applied to owners who are suffering COVID-19 related financial hardship or to every owner regardless of that. This is expressly confirmed to not be a restricted issue.
The committee is obliged to take into account what the body corporate still needs to spend during the financial year.
Cashflow forecasts will become incredibly important if committees take advantage of this provision.
Interest on overdue levies
Bodies corporate can charge 2.5% interest per month on overdue levies under the Modules.
They now cannot do that on amounts that are overdue during the COVID period, irrespective of any previous resolutions to charge interest and whether the amount falls due in the COVID period or not. The example in the bill is illustrative:
‘An account requiring payment of a contribution instalment given to an owner of a lot 2 months before the commencement is not paid until 1 February 2021. The owner is not liable for a penalty for the contribution instalment being in arrears during the relevant period. However, the owner may be liable for a penalty for the contribution instalment being in arrears before and after the relevant period.’
Getting the mechanics right in the strata management software everyone uses is going to be critically important as this provision will arrive almost immediately. If it is not managed correctly, it is going to be a logistical nightmare for bodies corporate seeking to detail the amounts owed for overdue levies in due course, especially in recovery proceedings.
Commencement of levy recovery proceedings
At the moment there is a statutory obligation to commence proceedings for recovery of body corporate levies two years and two months from when they first fall due. We wrote about that here.
That obligation has been removed during the COVID period. Bodies corporate can still commence proceedings, but they are not obliged to. Proceedings started before the COVID period remain unchanged.
After the COVID period, bodies corporate then have two months to commence those proceedings for levies that are outside that two-year and two-month period.
What bodies corporate should do here in either case is something else entirely. We will talk about that in this Friday’s webinar.
Body corporate borrowing
Bodies corporate have the ability to borrow. Under the Standard Module that is by ordinary resolution unless the amount borrowed is more than $250 per lot, in which case the borrowing has to be approved by resolution without dissent. The equivalent provisions in the Accommodation Module have the same $250 line in the sand, but approval of borrowing above that is by special resolution. That is the same under the Commercial Module.
The base-line amount has been doubled. All bodies corporate can now borrow up to $500 per lot by ordinary resolution. After that, they need to comply with the higher threshold.
There are no equivalent sections for many of the BCCMA provisions under the BUGTA. The one change here is that committees have the same right to extend the date for payment of levies to the end of the body corporate’s financial year, and committees have the same obligation with respect to making sure that the body corporate still has the ability to meet its financial commitments.
These are sensible and practical solutions to help with critical body corporate financial issues, however:-
(a) they are only temporary; and
(b) they probably could have gone even further.
Even so, we don’t think it is a green light for bodies corporate to come up with crazy ideas about finances and then force them through under the cover of ‘COVID emergency’. These amendments will need to be complied with, and bodies corporate are still required to act reasonably at all times.
What is ‘acting reasonably’, we hear you ask? That’s something we can advise you on...
This Friday’s webinar
Register here and join Frank Higginson and Chris Irons at 2:00pm on Friday to discuss these issues.
You can also read the whole bill here.