In these times of economic hardship, an increasing amount of lot owners within a body corporate are experiencing difficult financial times and are failing to pay their body corporate levies.
Levies are irretrievably attached to the lot pursuant to all regulation modules. This means that the liability to pay a body corporate debt is enforceable against the owner of the lot at the time the levy was payable and the owner of the lot at any time after the levy falls due.
The standard conditions of REIQ contract for sale of residential lots in a CTS provide that:
- the seller is liable for all outgoings up to settlement and buyer after settlement;
- if outgoings are assessed but unpaid at settlement the buyer may deduct the amount from the balance purchase price; and
- the property is sold free from encumbrances (registered and unregistered encumbrances).
There is no right for a body corporate to demand payment of outstanding levies at settlement. However, standard commercial practice is for the purchaser to require a cheque for outstanding levies drawn at settlement so that they have a title that is clear of outstanding levies.
A difficult situation may arise where the owner of the unit is either a company that enters into administration, or an individual that becomes bankrupt. If the body corporate is owed money when the administration or bankruptcy commences, it may not be possible to recover the entire amount of the owing levies from that owner. However, the Body Corporate and Community Management Act 1997 makes provision for this situation, specifically allowing the body corporate to recover from the next owner of that lot.
So, while there might be some cash flow issues for the body corporate in the short term, the reality is that all of the levies must be paid at some stage.