Body Corporate Debt Recovery Changes: Good or Bad?

20 July 2017

In February 2017, the Commercial and Property Law Research Centre issued its Final Report on a myriad of proposed changes to body corporate legislation.

This article will focus on one area: the recovery of body corporate debts.

After years of consulting with stakeholders and members of the public, the proposed changes are extensive.

The question is, is there any substance to them or are they a watered-down policy shake-up? We delve deeper to find out.

What are the proposed changes?

Broadly speaking, the changes propose to:

1.  introduce an itemised scale and maximum charge for debt recovery costs incurred by bodies corporate, but not for recovery costs of proceedings

2.  amend the definition of ‘body corporate debt’ to include recovery costs

3.  mandate that an address for service must be provided for each lot or, if found to be inaccurate, deem the individual lot itself to be the address for service

4.  reduce the time requiring bodies corporate to pursue debts to 1 year and 2 months (from 2 years and 2 months)

5.  provide a statutory framework to garnishee rental income for outstanding debts of a lot, where a judgment order is obtained.

Are the changes positive?

Somewhat. Let’s look at each in more detail:

  • Regarding an itemised scale of costs

We believe these changes merely cement established industry practice amongst bodies corporate (and property management companies).

From a practical standpoint, the proposed changes will have little impact as we seldom see bodies corporate charging excessive recovery costs.

Nevertheless, if an appropriate quantum is assigned to each scale cost item and there are sufficient scale items legislated, then having a policy to prevent exceptional cases of bodies corporate overcharging for recovery costs is worthwhile (on balance).

  • Regarding changing the definition of body corporate debt

We believe this will have minimal impact and will simply implement what is already industry practice – particularly if the proposed scale costs are also implemented.

  • Regarding a framework for lot owners to dispute recovery costs

Importantly, the changes also discuss a framework for a lot owner to ‘dispute’ the recovery costs within a 60-day timeframe.

We view this change as problematic.

On what basis is the lot owner entitled to dispute the costs, if genuinely incurred by the body corporate? What would be the standard of proof required? Would the ‘dispute’ be reviewable in court?

In our view, this proposed change could open a plethora of unintended consequences and this issue should be dealt with informally between lot owners and bodies corporate.

  • Regarding the ‘address for service’ changes

We believe this is the most important change.

Australia has seen a significant increase in overseas investment in recent years.

Mahoneys has acted in numerous cases where a lot owner cannot be located or is abroad.

In these instances, the costs incurred by bodies corporate have escalated significantly where the lot owner absconds from paying the debt entirely – simply because the owner has been unable to be personally served.

We agree that the cornerstone principle of personal service should not change and overall Mahoneys welcomes the proposed changes vehemently.

  • Regarding reducing the time frame in which bodies corporate must pursue a debt

This can only positively impact the resilience and cash flow of bodies corporate. While the changes will have minimal practical effect for the majority of bodies corporate (bodies corporate often pursue debts significantly earlier than required), Mahoneys welcomes the changes.

  • Regarding a framework to garnishee rental income where a body corporate is owed

In our view, this is another welcome change. Although we see few circumstances where such a framework might assist, these changes may prove invaluable in some cases where foreign investors are concerned to avoid costly court-directed garnishee orders, enforcement or bankruptcy proceedings. These are cases where foreign investors enjoy the fruits of their investment, but refuse to pay the associated costs.

To summarise…

On the whole, the changes are positive and welcome. While most will have little practical impact, some (such as the proposed changes to addresses for service) will have an enormous positive flow-on effect for both bodies corporate and the overall policy objectives of minimising recovery costs and body corporate debts.

  • Do you have a debt which needs recovering?

Mahoneys has a very active and successful general and body corporate debt recovery practice.

If you need assistance recovering debts, call (07) 3007 3777.