Financial Hardship and Strata Levies — Striking the Right Balance When There’s Money Outstanding

In part due to the cost of living crisis and a focus on Australians struggling to pay bills and make ends meet, there has been a recent focus from strata committees, the strata industry and consumers regarding strata levies and the issues that arise if they go unpaid.

There have been calls from consumer bodies in the wake of a perceived rise of people who have not been able to pay their strata levies in a timely manner during the cost of living crisis for greater measures to be in place to protect consumers in these circumstances.

At the same time, those working as strata managers, serving on strata committees or owning in strata communities feel that unpaid levies are part of a bigger picture that is often not well captured when the spotlight falls on the issue.

We’re taking a better look at what is happening on the ground and a look at the nature of strata committees, what strata levies pay for, current practice and legislation around strata levy debt, and what SCA is doing to progress the issues for all parties.

The unique nature of strata committees1 and unpaid strata levies

The unique nature of strata committees plays a huge part in understanding why recovering unpaid strata levies is not a straightforward issue. Strata committees function is only to serve the common ownership of a strata property. In this way, a strata committee is not like a business, which can generate revenue, increase its profits or simply write off its bad debts. What this means, is that owners who do not, or are unable to pay their levies on time, impose a financial burden on their co-owners in the short term, and this creates debts in the owner ledger of the strata corporation, by which they have few means to recover.

To add to this, strata committees are often quite small, averaging (dependent on jurisdiction) only 10 or so lots, meaning one set of unpaid bills makes a big dent on the budget bottom line. It means that, unlike other organisations who are owed money from consumers such as banks and telecommunications companies, the ability to absorb a lack of payment, or part payment, is significantly smaller and requires other owners to cover the cash flow shortfall.

In most cases too, the services that are being paid for from the strata levies are not services that you can easily ‘turn the taps off’ to. Utilities bills, maintenance and services contracts and insurance bills are all ongoing, arriving either as a lump sum annual payment that requires timely payment, or that is paid monthly or quarterly.

There is a sense too among strata managers and strata committee members, that in many cases strata levies can be some of the bills that are put to the bottom of the pile to be paid. Electricity bills, mortgage or rent and phone bills are hardwired into us to be paid, and the consequences via services being cut off, penalty notices or debt collection are well established and well known.

SCA, consumer groups and the path forward

Consumer groups are calling for strata companies to offer financial hardship arrangements, an increase to the bankruptcy threshold, a cap on the amount of fees and charges that can be added to the original debt, and free mediation, information and support.

Some of these measures would need legislative change, others could be achieved by working hand-in-hand with consumer groups. Strata legislation is state-based, and currently in almost all jurisdictions there is no requirement to offer financial hardship arrangements. Despite this, it is quite widespread as best practice by many strata management firms to offer financial hardship arrangements when requested, however this does not take into account those complexes, which are often very small, who don’t have an appointed strata manager.

SCA is at the centre of this discussion, working with parties to lead to a positive and balanced resolution on this issue.

Providing additional information on the topic is something that SCA has already committed to, and is working to provide fact sheets and updated best practice guides on the topic that take into account national and state-based information.

SCA has met with representatives from Financial Counselling Australia (FCA) and the Australian Banking Association (ABA), who have likewise presented ways to work together to strike a positive balance that means strata committees and consumers can achieve a positive outcome together.

What everyone in the industry wants to work towards is a well-understood, easy to navigate pathway for when financial hardship circumstances arise that balances an understanding of personal circumstances with the need to contribute to the ongoing critical services and maintenance of a building.

Direct those who require free financial counselling to the National Debt Helpline

1800 007 007 

ndh.org.au

1 ‘Strata committee’ is a catch-all term to refer to a Strata committee, Body Corporate, Owners Corporation, Strata Company or Community Corporation, dependent on the reader’s jurisdiction.