Levy recovery during COVID-19

17 April 2020

Even though body corporate legislation has not changed with respect to levy recovery, the circumstances surrounding levy recovery and insolvency legislation has. This alters how a body corporate must now approach recovery of unpaid levies.

Existing position

Bodies corporate have a statutory obligation to recover unpaid levies and must start proceedings within 2 years and 2 months of the levy being overdue. The body corporate can also recover the approved interest and costs of seeking recovery of the unpaid levy.

The levied amount cannot be waived or reduced and must be paid in some way by the owner to the body corporate but:

  1. if there are special reasons, the approved interest and costs of seeking recovery of the unpaid levy can be waived; and
  2. the body corporate must act reasonably in considering any payment plans in relation to the unpaid levy.

Impact of COVID-19

All of the body corporate’s decision making must be reasonable. Given the significant economic impact of COVID-19 on lot owners, the committee must now provide more consideration to its decisions to:

  1. waive approved interest and recovery costs; and
  2. approve payment plans.

Otherwise, the body corporate is at risk of incurring costs that would not be recoverable by prematurely or unreasonably commencing proceedings.

This does not mean that all requests by owners must be granted, but that the committee needs to give more consideration to each application on its merits and not rely on any existing policies, for example, a standing rule not to enter into payment plans.

Insolvency legislation

Aside from the body corporate having an obligation to act reasonably and more readily consider entering into payment plans that are suitable, the committee should also be open to payment plans given the changes to insolvency legislation that have been passed.

In short, new legislation has come into effect in response to COVID-19 that increases the threshold for bankruptcy action (the ultimate step to recover unpaid levies). Accordingly, it may now be a more time and cost effective outcome to enter into more flexible payment plans than seeing through the levy recovery steps to the bankruptcy stage.

What committees should do

Committees must still take action to recover outstanding levies. The committee has a statutory obligation to do so and the body corporate requires levies to be paid by all owners to meet its own expenses.

However, in light of the present circumstances, the action taken by the committee should be more flexible such that payment plans are more readily entered into when the terms are palatable.

How we can help

To assist bodies corporate and lot owners, Mahoneys can now be engaged to recover levies on behalf of bodies corporate on the basis that our fees:

  • are not payable unless and until the levies are recovered from the lot owner; and
  • will be capped at the fees actually recovered from the lot owner.

This means the outstanding levies can be recovered earlier, while minimising the risks of recovery costs interfering with the owner’s ability to pay the levy.

Please contact us at info@mahoneys.com.au for more information if you are interested in engaging us.