Body Corporate Arrears Management

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No one wants to receive a special levy for the sole purpose of raising funds to cover the costs relating to legal costs for pursuing one of the lot owners for unpaid levies. Unpaid levies not only result in legal expenses, but also increase the likelihood of a Body Corporate having difficulty meeting its daily expenses.

In light of this, what is the best way for a body corporate to manage debt to reduce the likelihood that it will have a grossly negative impact on the scheme?

Our clients should consider these suggestions:

Interest on penalties

For outstanding levy payments, consider imposing penalty interest. If the owners are unable to pay their levy on time, the body corporate can impose a penalty to be paid by them. For each complete month that the debt remains outstanding, the maximum interest rate is 2.5% simple interest. Rather than penalizing other owners who must bear the body corporate’s costs, this helps the body corporate motivate the owners to pay on time and penalizes those who do not pay on time. The body corporate levies will receive the lowest priority if there are no penalties for late payment.

Discount for timely payment of arrears

In addition to accounting for it in the budget, the body corporate can also offer a discount to owners who pay their levies on time by the due date. Most owners in a scheme are eager to take advantage of a discount of up to 20% provided by the body corporate.

Maintain an eye on outstanding debts

It is best practice to keep on top of these debts and address them as soon as possible. However, under Qld Legislation, the Body Corporate is only required to send a debt to debt collection after two years of outstanding payments. When these debts are left unpaid for an extended period of time, the pressure on the owner increases. We provide the owners with notice 30 days before the levy is due to be paid by the owner. A reminder is sent to the owner 5 days after the due date. If it is not paid within 19 days, they receive a notice that the debt remains unpaid, and 33 days later they will receive another notice. From there after 47 days, the will receive a final notice stating that the debt remains unpaid. We will attempt to contact the debt owner by telephone or email if it remains unpaid after that period. In the end, we will approach the committee to determine whether they wish to see the matter taken to debt collection. A lot owner will be charged the collection costs if it is sent to debt collection.

Establish a reputation as a firm but fair Body Corporate

It is important to remember that sometimes owners may be in extenuating circumstances. Some people resort to shutting down and not communicating with the body corporate when they do not know what to do. In some cases, people have no idea how to deal with debt. It is important for the body corporate to be empathic and to resolve debts in a timely and fair manner where possible. However, the committee cannot allow itself to be exploited by the body corporate. In our experience, the best solution is when the owner agrees and commits to a payment plan that addresses the arrears and keeps ahead of the levy.