Q: strata fees in arrears

Another question to help a young relative out. They bought an apartment less than 18 months ago.

On the strata reports for a number of years, there has been a (large) amount of strata fees in arrears. They attended a recent AGM (via zoom) and found out that the arrears strata fees were from one owner (let's call him X) who owned 2 apartments in a building of 30 units (he bought them when the building was built more than 20 years ago). He lived in one and rented the other. He has not paid any strata fee since 2021!

The strata manager said they have 'discussed' the situation with this particular owner about his arrears strata fee, but have not been successful as X 'refused' to communicate. Last year they offered X a payment plan, but for some reason the payment plan was rejected by X on a technicality (?) so they had to re-draft the payment plan.

Some members (owners) on the strata committee said they have had enough and legal actions should be taken against X - which the strata manager said they would start legal proceedings. Now, the strata manager said X has attended a meeting with the strata manager. X claim he has been unwell, and provided a medical certificate. So, the strata manager said a new payment plan has been set up to allow X to pay the arrear amount by monthly instalments over the next 12 months. Strata manager also advised that X requested a waiver of interest penalty on the arrears - and this decision should be made by the owners! Relative said most of the other owners said "no" to waiver on interest penalty.

There are a number of issues here. It appeared that the strata manager has not been doing their job, by letting the unpaid strata fees dragging on for more than three years (and still no end in sight). Also, the other owners have not been diligent in following up this issue with the strata manager to take action sooner? Can X be forced (legally) to sell one of his two units to pay for the arrears strata fees?

What would you do, if you were an owner (not defaulting on strata fees) in this situation?

 

ongoing for years? send him to debt collectors asap, its usually enough to get them to pay, if they don't then debt collector can deal with it, simple..

SM gets paid to watch the accounts and usually they will send a notice to CoO if someone is 6 months over due, worse it gets to AGM and everyone should be able to see they are in arrears, if you see they are in arrears request debt collection notice.. last time I saw it debt the collector doesnot charge the CoO, they recover their costs and interest from owner. I recall one SM playing soft with a payment plan for an owner and it was ongoing for years, he'd pay for a bit and then stop , only to end up at debt collections and then it was instant payment.

 

It should not have been going on for years. While legal action would probably succeed, waiting a bit for the payment plan to start is simpler. Add interest. The maths is something like this.
3 years of fees owing
pay that over one year
add normal fees
this is one year of fees every quarter for a year
Then pay interest at the official rate, 10% in Victoria. This is set down by legislation.

If nothing is paid ASAP then go down the legal track. One easy way is to seek an order getting 75 per cent of the rent for both properties until the debt is paid. When the debt is paid, leave the arrangement in place so that the fees come straight from the rental income from the PM sent to the OC. Before starting formal proceedings, send the owner a draft of what you will be submitting. Add advice that if the owner does not pay or agree to the lien then a property will be sold.

You may wish to monitor property sales. He may sell both and make the above harder. If a property is advertised as being for sale then add a caveat to the title that some proceeds are to be paid to the OC. How this is is done depends on the jurisdiction.

It may be time to get another OC manager.

 

Thanks, tk421. I am of the same view as yours. I actually listened in the AGM zoom meeting with my relative as I was shocked that how the SM let things out of control on the arrears levies for so long. I used to have an IP (strata unit) and in the beginning there were 2 owners who were behind their strata fees, they got zapped with interest penalties and had to pay (the SM managed all this automatically).

The other issue was that it seemed every year there was a different person from the SM company doing the job The current SM did not have much to explain as how the situation had been dragging on for so long. And at the AGM there were only 3 owners present - my relative and 2 others - so the other owners did not care? Debt collectors were vaguely mentioned at the AGM, but the SM brushed it off and said he would look into legal action.

 

Thanks, Burramys. I will share what you have said with my relative.
Agree, I have hinted to my relative to get support from the other owners to seek a new SM. At the AGM, the SM put themselves up for another 3 years renewal. So, my relative asked if that should be for only one year. The SM was not happy about it, but the other 2 owners supported my relative, so I have been trying to research as to how they can change SM before the next AGM.

 

A contract exists between the strata manager (SM) and owners corporation. There is a requirement at law that the SM follow the law and good practice, which has many aspects. If the SM does not follow the legislative requirements, common law or good practice, then there has been a breach of contract, and the contract may arguably be terminated without penalty by the OC. On the information before me it seems that this point has been reached.

However, the SM should be given an opportunity to clean up their act. Further, the OC may have been remiss if owners were aware of the outstanding fees some time ago. I strongly suggest that you look at the minutes of the last four AGMs. If the SM advised about the outstanding fees several years ago and/or subsequently then the OC is at fault. The staring point is getting facts.

I may be able to advise with more specifics if you say where the property is located. Different states and territories have different laws.

 

Thanks again, Burramys. I did have a quick glance at the AGM minutes for my relative the last 3 years and the levy arrears numbers were there - growing each year, but the minutes did not specifically mentioned them at all, other than the SM was authorised to deal with arrears such as setting up payment plans. I will have another look at the AGM minutes.
The aparment building is in Ryde City Council, NSW. I don't know why the owners appeared to have not made the case stronger to the SM to take more decisive actions.

 

The SM and OC are both at fault. The OC members should have read the accounts. The minutes do not need to mention an item which was in the notice of AGM, as accounts should have been. The SM is remiss in not drawing attention to the matter.

I suggest that the OC advise the SM in writing to take immediate action to to obtain the overdue fees. The first step is to quantify the fees by quarter and set this out, should be easy.
"The last quarterly payment was on (date). Since then payments have not been received and the following is owed:
2021 balance of OC year $1000
2022 all of OC year $2000
2023 all of OC year $2000
2024 year to (date) $1000
Total $6000"
Set this out in a word processor, tabbed, neat.

Continue with the demand:
"Immediate payment of the 2021 year is required. payment of the 2022 year is required by 4.00 pm on (two months hence)."
Continue for the other years at intervals of two months. Finish with:
"If any payment is missed then immediate action will be taken to have a lien on your rental income, and a caveats will be lodged against both your properties so that if one or both is sold the OC will obtain the monies owed.

Payment of the 2021 amount of (insert dollars) is required by 4.00 pm on (one week hence)."

Send the above as a letter attached to the email so that the SM can use it. Tell the SM to keep you informed of all actions. Investigate legal options so that if you need to take action it can be done quickly. When I give a 4.00 pm deadline, if there is no reply by 4.15 pm I file with the court then. This really puts the wind up them.

Forgot. Say that if you have to take the matter to court or lodge a caveat you will be seeking costs. One fool ignored me and had interest and other legal costs.

 

Thanks again, Burramys, for this - much appreciated.
The problem with my relative - they feel overwhelmed in dealing with the SM, as they are young first home owner with a large mortgage, working full time (and long hours) to service the loan, having not much time to deal with complicated strata issues, stressing out with the ongoing interest rate increases and strata fees going up (due to the defaulting owner not paying the fees ) I have tried my best to guide my relative and explained as much as I know on how to deal with the SM.

 

I have a friend like that. She refuses to take my property, investing and money advice. She bought a house near mine shortly after I bought my house. My house is bigger on a bigger block with a garage. Hers is smaller house on a smaller block with a carport that will need to be replaced, joists are rotting. She paid more than me, about $50,000 too much.

It can be hard to persuade such people to adopt measures that experienced people view as the best ways.

Two options come to mind. You go through the minutes for the last four years and draft advice along the lines that are advised above. At every step she consults you for directions. The second option is that she makes out a limited power of attorney in your favor to deal with the SM just for this matter. You keep her informed and seek instructions from her, and if you are unsure, ask in this thread. The advice in this forum is peer reviewed, perhaps the best free property advice in Australia. I have greatly benefited from the advice in this forum.

At the same time you may be able to advise her about money management. The interest rate rises are stressful for many people. Three suggestions may be possible.
1 Build up a cash reserve to a month of spending. This will smooth out the cashflow. Have this in the day to day bank account.

2 If there's a redraw or offset, add extra funds to these. The redraw appeals to me most as I can see the balance.

3 If possible, pay half the monthly mortgage amount a fortnight, rounded up to the nearest $10. This gives 26 fortnights or 13 months of payments a year.
I have done all of the above.

I am very careful with small spending, stingy even. I save pennies where I can so that I can save for major expenses. Lights are switched off when not in uses, I drive steadily, food is defrosted before cooking, I don't buy junk food, more. Savings are sued to buy shares, buy property and do renovations. You may be able to identify areas of her life than can be changed without unduly changing her lifestyle. Like a mortgage, small amounts add up and compound. The cost of a coffee or two a day and buying lunch at work for 40 years is hundreds of thousands of dollars. I did neither.

 

Many thanks again, Burramys! Your comments and suggestions are very welcome and sensible. Agree, I have found the forum to be a useful and open place to get views on free expert advice and benefit greatly from it from time to time.

It is very hard to share investing / money management with family / relatives. They always want to do things in their own terms! When this happened, I just walked away. I have found it is easier to do so with friends - some of my friends have done well for themselves with property investments, which made me very happy for them. I have advised my relative to start early by taking steps to invest in shares like ETF (not much money is required like property investment) due to the time value of money, but it has been a fruitless exercise to date

My relative has an offset account (where salary is paid into) linked to their loan account - I insisted on this. Also, the loan repayment is set at fortnightly instead of monthly. I do encourage them to cut out 'instant gratification' spend (like coffee, eating out, junk food etc)

I will work with my relative on the SM issue with strata fees in arrears - as you have suggested.

 

My relative (plus other owners) received updates from the SM that the levy-in-arrears owner has decided to pay all the levies (as invoiced each quarter for the last 3 years) as they did not want to incur further penalties. However, they did not pay the interest penalties and the legal fees incurrred by the owners corporation. They have asked that all these to be waived - amounted to $4K, not an insignificant sum! The SM asked the other owners for their views on this. Some owners said, they have said 'no' previously, and their answer is still 'no'. They don't want to set a precedent. These fees have already been included in the increased levies for this year - ie the owners corporation has already paid for them.

 

Setting a precedent by not paying costs is bad.

I very strongly suggest that you demand the costs incurred to recover the overdue OC fees. Make it as easy and fair as possible. If the costs are $4298.85 then suggest that starting a month after the overdue OC fees are paid that the miscreant pays $298.85. A month later he pays $1000, and again for another three months.

This is fair and allows him to manage cashflow. If the rent is $500 a week then there is roughly$2000 a month in rental income, so $1000 is around half of this. Being reasonable will look very good at NCAT. If he does not comply then say that you will take the matter to NCAT and seek OC costs for this and interest for everything. Be polite but firm. Give him two weeks to respond, stating this, reply by 4.00 pm on (date).

While waiting write the brief and get it approved by the OC. If there's no reply by the due date, at 4.30 pm send the brief to the miscreant for comment within seven days. The promptness and details should scare him. Say that the new legal fees and interest will probably be $1-2000, and that the order says that you want all of this at once. He then has a choice of paying $4000 over several months or $5-6000 immediately. Make this very clear.

 

The collections on arrears is not a owner issue. It is one for the strata committee to address and resolve. The owners should only make the strata manager accountable for their actions and inactions. There may be privacy issues here too as it is unreasonable for the owners personal matters to be shared with other property owners. The statutory penalty regime of 10% interest (NSW) for unpaid levies and arrears acts to encourage a owner to find a way to pay. As may the expected legal fees and the possibility of a caveat over both properties following a tribunal action AND bankruptcy proceedings. The strata manager should also remind the owner they cant vote while unfinancial

 

Thanks, Burramys. Your suggestions are received with thanks. Will get my relative to discuss them with the other owners and the SM to get a resolution to this long standing issue!

 

Paul, my post did not make it clear that actions are to be taken by the SM. Lot owners can do the work, perhaps the committee, instructing the SM. In Victoria a lot owner is unable to vote until all monies owed are paid. This may be similar to other other Australian jurisdictions. Reminding the owner that the owner cannot vote is a good idea.