In any community, financial stability is crucial for smooth operations and maintenance. Strata communities are no exception. However, when strata owners fail to meet their financial obligations, it can disrupt the balance and strain resources. In such cases, understanding the debt recovery process becomes essential. This article aims to shed light on the standard debt recovery process in strata to maintain a healthy cash flow for the owners corporation, and outline practical steps on what owners can do if they're falling behind in payment.
Typical Debt Recovery Process
Identification of Arrears: The debt recovery process typically begins with identifying owners who are in arrears (typically more than 30 days overdue) with their strata levies. Regular financial reports and diligent record-keeping are vital in this stage. Committee members or professional managers review these reports to pinpoint delinquent owners.
Notice of Arrears: Once delinquent owners are identified, the next step is to issue a formal notice of arrears (Reminder Notice). This notice serves as a reminder of the outstanding debt and outlines the consequences of continued non-payment. It is usually sent via registered mail or email, clearly stating the amount owed and the due date for payment. A debt recovery fee will be charged to the lot in arrears plus 10% simple interest per year as per the Strata Schemes Management Act 2015 - Section 85.
Demand Notice: In some cases, owners may overlook the initial Reminder Notice. In such instances, follow-up Demand Notices are sent to prompt action. These reminders reiterate the urgency of the situation and may include additional details such as late fees or interest accruing on the outstanding amount.
Final Demand Notice: If repeated reminders fail to elicit a response, a Final Demand Letter and Notice are issued. This letter formally demands payment of the outstanding debt within a specified timeframe (typically within 28 days), failing which legal action may be initiated. It often includes details of potential consequences, such as legal costs or court proceedings. Owners Corporations may file for bankruptcy if the debt reaches more than $10,000.
Legal Action: When all attempts at amicable resolution prove unsuccessful, strata communities may resort to legal action to recover the debt. This typically involves filing a claim with the relevant tribunal or court, typically the NSW Civil and Administrative Tribunal (NCAT). Apart from recovering the levies, the owners corporation can apply for any reasonable recovery costs and any interest owing.
Enforcement: If the tribunal or court rules in favour of the owners corporation, various enforcement measures may be undertaken to recover the debt. These may include garnishing wages, placing a charge on the owner's property, or seeking orders for the sale of the property to satisfy the debt.
Experiencing Financial Hardship? Here's What to Do
If you're struggling with strata levy payments, act quickly. Prioritise these payments alongside your mortgage and council rates. Even if you fall behind, keep making payments within your means and aim to catch up as soon as possible. Assess your finances with a budget to create a realistic payment plan. Reach out to your owners corporation and managing agent, explaining your financial difficulties and suggesting a repayment arrangement. Some agencies may have a formal process for financial hardship, while others handle it more informally. Keep in mind that while your managing agent can advise the strata committee, the committee ultimately makes the decision, and the agent cannot override it.
Payment Plan
Owners corporations have the authority, through a resolution at a general meeting, but no obligation to, establish payment plans for overdue contributions. Provide thorough details about your personal circumstances and the reasons behind your financial hardship. This information will assist the committee in determining whether to grant a payment plan. These plans are typically limited to a 12-month period. However, if necessary, the owners corporation may agree to extend the plan through another resolution. Importantly, the existence of a payment plan does not restrict the owners corporation's ability to pursue other means of recovering unpaid contributions.
Tips:
Request a temporary halt to any legal actions while your request for financial hardship is being evaluated.
Clarify whether the owners' corporation agrees to waive or reduce any interest charges on the overdue levies as part of the payment plan.
Document any agreed-upon arrangement thoroughly, ensuring you have a copy for your records.
Adhere strictly to the agreed payment schedule, making timely payments as outlined in the arrangement.
Keep the lines of communication open with the owners corporation or strata managing agent throughout the repayment period. If you encounter any difficulties or changes in your financial circumstances, notify them promptly to discuss potential adjustments to the payment plan.
National Debt Helpline: Additional assistance or access to a free financial counsellor is available through the National Debt Helpline.
Navigating financial challenges within strata communities requires proactive communication and collaboration. By understanding the debt recovery process and taking swift action to address any financial hardships, strata owners can help maintain the stability and harmony of their communities. If you find yourself in need of assistance or guidance in managing strata levies or navigating financial difficulties, don't hesitate to reach out to Compass Strata. Our experienced team is here to support you every step of the way, ensuring a smooth and sustainable path forward for your strata community. Contact us today to learn more about how we can assist you.
