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Case review: Recovery of enforcement costs relating to unpaid strata levies

Key points

  • Owners corporations should not add enforcement or administrative costs to an owner's ledger without a judgment or costs assessment.
  • Owners corporations should consider their options when recovering unpaid levies to ensure they recovery their enforcement and administrative costs.
  • Owners corporations should not be commencing proceedings to recover only legal costs or enforcement expenses.
court gavel & scales

Summary

The Local Court of NSW has delivered in a decision in The Owners – Strata Plan 50946 v Hong [2018] NSWLC 3 dealing with an Owners Corporations recovery of unpaid strata levies.  The Court was scathing of the strata manager’s approach of adding administrative costs and enforcements costs to a lot owner’s ledger related to unpaid strata levies. Enforcement costs such as fees for issuing levy reminder notices and issuing letters of demand had been added to a lot owner’s ledger.

Facts

The Owners Corporation commenced proceedings in the Local Court against a lot owner for overdue strata levies, interest and costs. The parties had been involved in a long history of dispute and litigation regarding overdue strata levies. A new strata manager was now managing the scheme and there was conflicting evidence regarding the lot owners arrangements for paying levies including payment plans.

The records of the Owners Corporation showed that legal expenses and administrative expenses from previous attempts to recover unpaid strata levies had been debited to the lot owner’s ledger. Therefore, it was difficult to determine which amounts the Owners Corporation were claiming and the basis on which they claimed they were entitled to recover those amounts.

Decision

The Court found that the strata manager on behalf of the Owners Corporation had adopted a practice which was “contrary to what is permitted by the Strata Schemes Management Act 2015.” The Act made it clear that levies and interest on unpaid levies were immediately due and payable. Conversely, section 86(2A) allowed an Owners Corporation to recover its reasonable expenses incurred in recovering unpaid levies and interest. The recovery of these reasonable expenses, however, must be in proceedings for the recovery of unpaid levies and were subject to the Court (or a Tribunal) making an order quantifying those reasonable expenses.

The practice of the strata manager by automatically including these expenses on the lot owner’s ledgers resulted in it becoming difficult for the parties and the Court to determine what amounts were claimed as unpaid levies and what amounts were expenses. The consequence of the practice also meant that the interest debited on the ledger was incorrect as interest had accrued on expenses which the Owners Corporation had no entitlement to charge to the ledger.

Owners Corporations cannot unilaterally appropriate payments made by lot owners for payment of levies towards expenses incurred without those expenses being either assessed as reasonable by a court or tribunal or otherwise agreed upon between the Owners Corporation and the lot owner

The Court held that it was pre-emptive to add any recovery expenses to the lot owner’s ledger before a Court order. In these circumstances, it was unreasonable for the Owners Corporation to commence proceedings seeking to recover unpaid levies where the Owners Corporation could not identify the amount of unpaid levies excluding recovery costs. Further, where the owner had been making payments towards the levies, the inclusion of recovery costs on the ledger resulted in some of these payments being recorded against the recovery costs rather than the strata levies. The overall effect of the strata manager’s flawed practice resulted in a situation where the Court was unable to determine without further evidence and analysis if the amount paid by the lot owner covered the strata levies if the recovery costs and associated interest were removed.

Further information

Adam has been a member of the Stephen Wawn & Associates' team since 2015. He has experience in litigation including commercial and estate litigation and advises clients on a diverse range of legal issues.

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DISCLAIMER

No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

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