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2. How To Get Levies Paid
The importance in ensuring that levies are paid by all strata unit owners cannot be
underestimated. Problems which arise when levies are not paid include:
1. Levies having to be increased to cover the deficit;
2. Essential services and maintenance becoming unaffordable;
3. Property beginning to appear run down – which in turn reduces property values;
4. Shortfalls added to next year’s budgets;
5. Borrowing from other community funds e.g. the sinking fund meant for long term capital
works;
6. Terminating term investments at a penalty and using savings;
7. Borrowing from a lender at high interest rates attached to strata lending;
8. Disharmony between paying owners and non-paying owners;
9. Search agents reporting to prospective purchasers that levy arrears are too high and
symptomatic of more serious issues within the community to be avoided; and
10. Allegations against serving committee members of dereliction of duties
This is not an exhaustive list, but it clearly indicates the significance of having your levy
collection policy in order.
Running a Tight Ship
Adopt a policy
An owners corporation or body corporate should have a clear policy which sets out how levies
will be collected and the system by which those lot owners who do not pay their levies will be
dealt with.
When creating a policy it is important to be specific as to time periods after which particular
action will be taken, as well as the behavior that will lead to legal proceedings being brought
against lot owners – lot owners tend to abide by rules much more when they understand
exactly what the consequences of non-compliance are.
For this reason you will need to clearly and regularly communicate the policy to lot owners
and ensure you apply it consistently. Do exactly what the collection policy says – If the policy
says send a reminder after thirty days, then do just that on the thirty-first day not the thirty-
second. This is extremely important to the credibility of the policy and will leave lot owners
with no uncertainty as to what will happen when they fail to pay their levies. It will also avoid
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3. any allegations that Executive committee members or strata managers are acting in a
selective or discriminatory manner.
An effective collection policy should be:
1. In writing;
2. Easy to understand – short sentences, plain English and less than two pages long;
3. Specific about the amount of penalties and interest that will be charged and when;
4. Within the powers of the owners corporation so that it is utterly enforceable and credible –
for example, don’t threaten penalty interest of 20% pa when the legislation caps the rate
at 10% (as it does in NSW);
5. Outline when delinquent payments will be referred to lawyers and what they must then do
to collect the debts with interest and costs;
6. Able to accommodate payment plans (provided that all ongoing levies are being paid on
time and the backlog is being cleared by regular payments – it is no good having a
repayment arrangement, which results in the debt increasing rather than decreasing over
the medium to longer term; and
7. Explicit about how payments will be applied i.e. firstly towards the principal amount owing
and then towards interest and recovery costs.
Budget for it
In every group of strata owners it seems there will be a certain percentage of late payers – it
doesn’t seem to matter whether it is a large group or a small one – people are people and late
payers are a reality that owners must anticipate along with the cost of recovery.
Each year you must estimate how much money your owners corporation will need to credit to
your administrative and sinking funds for actual and expected expenditure.
Delinquency performance ratio
In determining your delinquency rate, focus on the debts over 90 days i.e. beyond the current
levy period and measure unpaid levies as a percentage of the pro rata annual budget for your
admin and sinking funds. For example,
If your yearly admin budget is $100,000 and in September, at the end of the third
quarter, the admin levies which have been outstanding for more than 90 days total
$15,000 your delinquency rate is 20%.
That’s calculated this way: $100,000 x 3/4 = $75,000 budget year to date
$15,000 divided by $75,000 is 20 %
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4. Your performance calculator
Delinquency Performance guide
performance ratio
0% You are all over those levies! but don’t assume this rate will last for
ever – hard times hit owners
5% Not bad – this is the average – you are within striking distance of out
performing the industry
10% Warning bells – this is too high and you will be facing hard questions
soon if not already about your recovery processes (or lack thereof)
15% + You’re in strife – this will involve some serious application to pull back
from here – you have to collect debts and re educate your owners
immediately.
Teach them
The ability to get along with other members of a strata community seems to be a skill that
many unit owners are severely lacking. However while some unit owners can drive you crazy
with their inconsiderate behavior or recalcitrance towards levy contributions, the root cause of
these problems can often be found in a lack of understanding of how a strata community
operates and what it takes to live in one.
There will never be a better time than just after settlement to start a conversation about a new
owner’s responsibilities to pay their levies on time. Some strata managers will have a
welcome pack of information but usually these are poorly put together and cause information
overload. A simple letter introducing the strata manager and creating a clear expectation of
what’s required regarding payment of levies is a more useful document. The introduction
letter should include the levy collection policy.
Another opportunity to educate lot owners is at AGMs - Take a moment at the AGM to talk
about levies. The audience may include new owners and a short discussion will go a long
way to improving knowledge and understanding of the importance of paying on time.
Great notices
While certain unit owners attend general meetings and are aware of levy budgets and unit
owners’ responsibilities for contributions, other unit owners are not so levy savvy. For these
owners a levy notice through their post box can be their awakening to their levy obligations.
For this reason levy notices need to not only identify clearly the outstanding levies and the
date for payment, but they should also include a statement as to the unit owner’s obligations
to pay the amount and the strata community’s policy for late & non-payers so that all unit
owners understand what action will be taken against them when levies are not paid.
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5. Tips for increasing the effectiveness of levy notices:
1. Remove, or reduce the prominence of the strata managers’ logo – otherwise owners will
think the whole levy is for management fees rather than common property ownership
costs.
2. Include a sentence in the body of the invoice describing generally what levies cover e.g.
“FYI – Administration levies pay for expenses like gardening, repairing and maintaining
common property and insurance”
3. Change your notes on the levy notices every quarter eg. “ Administrative levies are for
recurring expenses – and sinking fund levies are for non recurrent or capital items”
4. Include a cover slip or flyer occasionally with a pie chart showing how levies are
expended on the basics – building repairs, utilities, management fees, gardening,
insurance and group other expenses – this will focus attention on the big-ticket items.
5. Use an occasional mail-out to thank the owners for their business and explain in twenty
words what you do.
6. Include a note thanking owners for paying on time and reminding those that haven’t that
penalties apply for late for payment.
Dealing With The Late Payers
Charge interest and offer a discount
The default position under the Strata Schemes Management Act 1996 (NSW) is that interest
accrues on late levies at a rate of 10% per annum starting one month after the levy becomes
due (this is also the highest amount of interest which can be charged in NSW). The rate of
interest chargeable and the rules for calculating that interest differ between the states.
However, whichever legislation applies to your strata scheme it is important that you
maximise the penalties for late payment,
In addition to charging the maximum interest prescribed by law, another thing which owners
corporations can do to beef up the penalty for late payment is to resolve to apply a discount to
early payments of levies. This must be done by special resolution at general meeting.
To allow for unit owners paying 10% less than normal under the discount, it is advisable to
increase the budget by 11.11%. This increase in the budget means that if every lot owner
were to receive the discount the contributions received would still meet the budget.
Hand write it
When sending out levy notices to lot owners it is important that that you grab the attention of
the lot owner and that the notice doesn’t go into the pile of ‘junk’ or ‘it can wait’ mail.
We have already discussed the importance of the content which is included in notices,
however the presentation of the notice is equally important. We advise hand writing
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6. addresses on envelopes to differentiate the notice from other automated mail. This of course
will not be practical in situations where you are dealing with hundreds of unit owners.
However it is a policy that can be adopted when sending out reminder notices to those lot
owners who are more that a quarter in arrears.
Another quick and easy method of differentiating your notice from other invoices is to
annotate or highlight the important points with red pen. This is such an effective method
because the lot owner receiving the notice can see that it is not simply an automated invoice,
but that there is somebody who is chasing their outstanding contributions.
Use the phone
Getting into discussions with late payers is a key step in the recovery process, and one which
can dramatically shorten that process. In the majority of cases outstanding levies can be
collected without the need for drawn out legal proceedings. This is beneficial to both the late-
payer and the owners corporation because the owners corporation get their outstanding fees
much more speedily and the lot owner avoids paying the legal fees associated with protracted
legal proceedings.
Good records
Record correct information. Wrong data will be the number one excuse for not paying. Check
that you have the names and addresses correctly recorded in your system as per the owners
notification of change of ownership – remind owners that they have a responsibility to update
you of changes in their contact details.
Take as much detail as you can during the process and record this where it will be accessible
to all for future reference. Take down a telephone number – being able to contact the lot
owner quickly by telephone, as discussed above, can make the debt collection process much
more swift and easy.
If the debtor gives you their mobile number or work address or details of when they will pay
because another asset they have is being sold – write this down and tell your lawyer. This
information could be very useful in enforcing a judgment once obtained.
(Gulp) Going legal…
In levy collection, litigation should be a last resort but when the last resort is used, it should be
employed with all its might to get a result - when you have to sue to recover levies, then make
an example of the case to encourage others not to go down this path and to educate owners
that a collection policy will be followed to the bitter end if required. This is only fair to those
who pay on time and who are being disadvantaged by the behaviour of the delinquent.
Once lawyers are involved, let them do the talking. There are two reasons for this. Firstly, it
will ensure that there are no mixed messages to the debtor. Secondly, it will be a pointer to
the gravity of the situation. The debtor now has to start with someone new and someone who
is trained to deal with conflict. This can often be the circuit breaker you need to get a change
in behaviour on the debtor’s part.
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7. Letter of demand
Just as with levy notices, the letter of demand must be attention grabbing and for this reason
we always handwrite envelopes and annotate important sections of the letter to catch the eye.
The letter of demand should not be the only attempt that is made to get in contact with a late
payer before commencing legal proceedings. Its common for people to avoid paying bills until
the last possible moment – some lot owners need to understand that court proceedings are
about to be brought against them before they pay their debts.
Getting into active debt payment dialogue with late payers over the phone is normally the
most effective way to recover levies. For this reason it is a key part of our debt recovery
procedure to supplement letters of demand with a number of phone calls to the late payer to
get the debt payment dialogue moving.
Taking it to court
The following section is an outline of the legal steps that levy collection will take when a lot
owner simply will not pay their outstanding fees.
Statement of claim
In the event that the letter of demand does not bring about the desired results the first stage
in commencing legal proceedings is for the lawyer to file a statement of claim with court.
A statement of claim is a court document that will set out the owners corporation’s claim for
relief against the non-paying lot owner.
The court in which the statement of claim will need to be filed will vary according to the size of
the debt and the location of the strata scheme.
The statement of claim will set out the details of the levies, interest and recovery costs which
are owed by the lot owner.
Service of claim on lot owner
Once the statement of claim has been filed it will need to be served on the lot owner.
Generally this service will be personal service, which will be done by a process server who
will attend the residence of the lot owner, ascertain their identity and hand the statement of
claim to him/her.
Service can take time to effect where the location of a lot owner is not known and in some
situations your lawyer may have to apply to court for substituted service which means that
service is effected by another method such as service on a relative of the lot owner - this
process will be much more straightforward when good records of the lot owner’s details have
been kept.
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8. 28 Day period for lot owner to respond
Once the statement of claim has been served the lot owner has 28 days in which to respond.
He/she may do this by disputing the debt (this is rare), by paying the debt, or by
acknowledging the debt and asking for further time to pay.
On receiving an application for further time to pay, it will be up to the court to decide on the
evidence before it whether to grant the extension.
Obtaining judgment
Judgment is the court’s decision on the matter and will generally set out the amount of the
debt which the lot owner owes together with interest.
In the event that the 28 day period elapses with no response by the lot owner your lawyer can
apply for default judgment against the lot owner – this is a judgment which is made by the
court in the absence of any evidence from the lot owner and will be based on the information
contained in the statement of claim and the application itself.
Alternatively if the lot owner acknowledges the debt in full then judgment will be entered
without the need for a default judgment application.
In the event that the lot owner defends the claim (or part of the claim) then a trial of the
evidence before the court will be required before any judgment is made. However, as noted
above this not common in levy collection proceedings and providing the levies have been
properly raised at general meeting and good financial records have been kept it is unlikely
that the lot owner will have a valid defence for not paying their levies.
Collecting money awarded by the court
The judgment obtained from the court will set out the amount owed by the lot owner under the
judgment. If, following the judgment being awarded, the lot owner still does not pay, the
following options are available to assist in recovering the debt:
• Examination summons
• Garnishee order
• Writ of execution
• Bankruptcy proceedings
Examination summons - “Show us your finances”
This is not so much a mechanism for the actual recovery of the debt, but rather a means of
finding out the financial situation of the debtor.
The first step is to fill out a request form, which is sent to the lot owner requesting financial
information of his/her income and assets including bank statements, credit card statements
and income tax assessments.
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9. In the event that the lot owner fails to properly respond to the request for information within
28days of receiving the form, your lawyer can apply to court for orders requiring the lot
owner’s attendance at court to be orally examined about his/her financial affairs.
The main purpose of this examination is to identify assets or sources of income, which may
be pursued in order to recover the debt.
Garnishee order - “We will take some of your wages”
A Garnishee order is a document that is served on the lot owner’s employer or bank. It
requires the employer to deduct funds from the debtor’s wages, or the bank to deduct funds
from the debtor’s account, and forward these amounts to the court.
This can also be done against rent if the lot owner is receiving rent from a tenant.
This method of recovery is generally only effective where the lot owner has a steady source
of income.
Writ of execution - “We will sell your stuff”
A writ of execution is a court order that directs the court sheriff/bailiff to seize and sell the lot
owner’s personal assets to pay off the debt.
The usual procedure in enforcing a writ of execution is for the sheriff/bailiff to attend the lot
owner’s address or place where their goods may be found. A demand is made on the lot
owner to pay the debt and if the debt is paid the matter is finalised.
If the debt is not paid the sheriff/bailiff will usually take an inventory of the lot owner’s goods.
This is called a "seizure”. The sheriff/bailiff will then either appoint a person as custodian of
the goods or remove the goods.
The goods will then be sold at public auction if the debtor fails to make payment before this
event.
In some cases where there are not sufficient personal assets to cover the debt the court will
also allow a writ of execution to be enforced against the Land owned by the debtor.
Bankruptcy proceedings - “The big one”
Where a judgment has been made, if the judgment is for $5,000.00 or greater, your lawyer
can use the judgment to apply to the Insolvency and Trustee Service Australia (ITSA) for a
bankruptcy notice to be issued against the lot owner.
The bankruptcy notice will need to be served on the lot owner.
Following a bankruptcy notice being issued and served on the lot owner, he/she will have
21days in which to pay the debt.
The next step will be to file a creditors petition with either the Federal Court or the Federal
Magistrates Court. The creditors petition is an application to the Court for the bankruptcy of
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10. the lot owner – it sets out the reasons why the lot owner should be made bankrupt.
On filing of the creditors petition the Court will give a return date at which a hearing will take
place. The petition will also need to be served on the lot owner prior to this hearing.
There may be a number of hearings before the Court decides whether the lot owner should
be made bankrupt, but once it is satisfied that the lot owner should be made bankrupt it will
issue sequestration orders – these are orders which make the lot owner bankrupt and allow a
trustee to be appointed to oversee their financial affairs and to pay off their debts. The trustee
may be ITSA operating in its capacity of Official Receiver. Alternatively an accredited private
trustee can be appointed.
On bankruptcy the debt will be recovered by the trustee in bankruptcy realising the funds
which are locked up in the lot owner’s assets (including their land) and paying the debts from
these funds.
Because bankruptcy has a major effect on the bankrupt individual, these proceedings are
stringently overseen by the courts and consequently the costs of making an application and
the evidence required by the court can both be substantial.
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11. Our Fees
(Prices are not inclusive of GST)
Letter of demand $87.00
Effective debt negotiations
(This is an optional stage in the process which we offer to owners corporations
because we find it so effective in recovering levies. After sending out a letter of
demand we will follow up with a series of telephone calls from one of our staff
experienced in debt recovery negotiations. The fee for this service is only paid
on successful recovery of the levies through negotiation with debtor) $300.00
Statement of claim
Claim less than $2,500 $350.00
Claim $2,500 - $5,000 $430.00
Claim $5,000 - $10,000 $520.00
Claim $10,000+ $600.00
Default judgment $320.00
Examination notice $70.00
Examination summons $360.00
Wage/bank garnishee order $250.00
Bailiff sale
Enforcement warrant $450.00
Our fee on bailiff sale $800.00
Defended claims
(Costs will be on a time basis) $200.00/hr
Bankruptcy
Bankruptcy notice $450.00
Creditors petition $1,500.00
Hearing of creditors petition and filing of sequestration orders $1,800.00
External Disbursements
(Prices include GST)
Local Court filing fee
NSW claim less than $10,000 $166.00
NSW claim $10,000+ $410.00
Service of claim on defendant $35.00 - $150.00
(costs vary according to attempts made to serve claim and method of service
required)
Court fee - examination summons $62.00
Bailiff sale
Fee execution of writ $70.00
Bailiff sale fee (including advertising etc) $2,600.00
Bankruptcy
ITSA fee for bankruptcy notice $440.00
Federal Magistrates Court filing fee $1983.00
Current at June 2011, but subject to change
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