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Impact of COVID-19 on Body Corporate Levy Recovery

By 30 September 2020Articles, Body Corporate
Impact of COVID-19 on Body Corporate Levy Recovery

COVID-19 has had a significant financial impact on individuals, businesses and Bodies Corporate alike. As a result, the Queensland Government passed the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act (“Amendment Act”) which amended the Body Corporate and Community Management Act 1997 (“BCCMA”) to assist individuals that have been financially affected and in turn support the wider Strata Community.

The Amendment Act came into force as of 25 May 2020 and will remain in place until 31 December 2020.

The existing position was that Bodies Corporate have a statutory obligation to recover unpaid levies together with the approved interest and the reasonably incurred recovery costs of seeking recovery of the unpaid levy. The changes represented in the Amendment Act overcome the need for Committee’s to consider waiving a proportion of the debt, for example the interest component as considered previously, given the current social and economic impacts of COVID-19.

The Amendment Act and what it means for Owners, Committee’s, Managers and Others, is as follows:

  1. Sinking Fund Budgets

A key change is that a Body Corporate, may, by ordinary resolution, adjust the sinking fund budget for the current or future financial year by removing some or all of the anticipate major expenditure.

Where a Body Corporate does utilise the benefit of the Amendment Act to adjust the sinking fund budget, and amounts have been paid by owners towards the budgeted expenditure then the Body Corporate “must” refund the owners the amount paid on account of that component.

Should be noted that lot owners are not required to request the refund and Bodies Corporate and Committee’s should be weary of their obligations to avoid contravention of the Amendment Act.

For example, a scheme maybe in need of rectification works and $200,000.00 has been allocated to be collected from the owners, with a proportion to be collected within the current period and the remaining to be collected at a later date. The resultant effect is that this may be removed from the budget of the Body Corporate, if agreed by ordinary resolution. This further reduces contributions payable by lot owners.

While this seems to be a worthwhile short-term relief for owners, come 1 January 2021, the budget expenses that have been removed will be required to go into the following budget and will be collected from all owners.

This is a short-term fix. This should not be a course to be adopted where sophisticated sinking fund forecasts are not in place to determine what may be deducted and refunded to owners within the Body Corporate.

  1. Amending the due date for Contributions Levied

Another takeaway from the Amendment Act is that Committees can alter the due dates for payment of levy contributions to the last date of the Body Corporate’s financial year. This is to provide lot owners who are suffering financially as a result of COVID-19 a further period in time to pay their contributions.

This is not a restrictive issue and can be applied on a discretionary and selective basis, or alternatively may be applied to every lot owner.

Again, cash flow forecasts are an important consideration should the Body Corporate wish to invoke the use of this Amendment.

  1. Penalties for Late Payment

We are well aware that Bodies Corporate can charge interest at a rate of 2.5% per cent per month on outstanding contributions.

A significant amendment is the prevention of Bodies Corporate from charging penalty interest on outstanding lot owner contributions until 31 December 2020. This is further inclusive of interest on outstanding levies that had been accumulating prior to the COVID-19 pandemic.

For example:

An account requiring payment of a contribution instalment given to an owner of a lot 2 months before the commencement is not paid until 1 February 2021. The owner is not liable for a penalty for the contribution instalment being in arrears during the relevant period. However, the owner may be liable for a penalty for the contribution instalment being in arrears before and after the relevant period.

This however does not prohibit a Body Corporate from taking action to recover outstanding Body Corporate debts all together.

This amendment should not be used as an excuse for not attending to payment of your contributions as and when they fall due. Come 1 January 2020 interest will be reinstated and will accumulate at a rate of 2.5% per month on outstanding levies.

OMB strongly suggests that all outstanding arrears be satisfied prior to 1 January 2020 to avoid interest accumulating and prevent the institution of legal proceedings for the recovery of the outstanding levies.

Recommendations and takeaways:

  1. The Body Corporate should act reasonably in dealing with financial management and when presented with payment plans;
  2. Payment plans should be settled and satisfied prior to 1 January 2020;
  3. Bodies Corporate should be aware that the Amendment Act is a short-term fix and should be mindful of the forecasted future and financial stability of the Body Corporate; and
  4. Employ sensible and practical solutions to assist with the financial hardship of owners.

You can review the COVID-19 emergency financial management legislation here.

Should you wish to discuss your Body Corporate issues, please contact our Gold Coast Lawyers to assist.

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