Levy Arrears Management in the age of COVID-19
June 18, 2020
As a result of the COVID-19 pandemic, governments around the world have implemented a range of remarkably wide-reaching laws to mitigate the economic impact. In late May 2020, the Queensland Parliament passed legislation altering the way in which Bodies Corporate administer themselves and, in particular, how they recover unpaid levies from lot owners. In this article, we provide an overview of these temporary changes.
On 25 May 2020, the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act 2020 commenced. The new Act makes a number of short-term changes to Bodies Corporate established and governed by the Body Corporate and Community Management Act 1997 (BCCMA). At this stage, all the changes are due to expire on 31 December 2020. There are three particular areas of relevance to Bodies Corporate:
- Penalty Interest;
- Extending the due date for Levies; and
- Recovery of Arrears.
From 25 May 2020 to 31 December 2020, Bodies Corporate cannot impose penalty interest on unpaid levies, even if they have previously approved charging penalty interest by ordinary resolution at a general meeting.
Bodies Corporate will need to liaise with their Body Corporate managers to ensure that penalty interest has been properly suspended over this period.
The new Act does not affect penalty interest charged and accrued prior to 25 May 2020, and penalty interest will be able to resume from 1 January 2021 onwards. Bodies Corporate will not need to carry a new resolution approving penalty interest from 1 January 2021.
Extending due date for Levies
Bodies Corporate now have the power to extend the due date for the payment of levies. The due date can be extended to a day no later than the end of the financial year, provided that date is before 31 December 2020.
Before it makes any decision, the Committee must consider whether extending the due date will impact on the Body Corporate’s ability to finance its necessary and reasonable expenses. Close attention will need to be paid to the administrative and sinking funds, including forecasted expenses.
The Committee can either extend the due date for all lots, or do so on a case by case basis. The Committee cannot waive levies altogether.
If the Committee wishes to extend the due date for all lots, it does not need to consider whether the owners are suffering financial hardship because of the COVID-19 pandemic. However, if it wishes to extend the due date on a case by case basis, the Committee must first be satisfied that the owner is suffering financial hardship because of the COVID-19 pandemic.
Recovery of Arrears
Typically, Bodies Corporate are required to commence court proceedings to recover unpaid levies that are more than two (2) years overdue. For an overview of what is involved in levy recovery proceedings, see our previous article at [https://www.smartstrata.com/levy-recovery-proceedings/]
This requirement has been suspended for the remainder of 2020. Bodies Corporate can still choose to commence proceedings if they wish, and existing proceedings to recover arrears are unaffected by the new Act.
Levy Recovery Action after 1 January 2021
After these temporary measures automatically expire on 31 December 2020, Bodies Corporate will again be subject to the typical requirement to commence court proceedings to recover levies that are more than two (2) years overdue.
However, because levies will have progressively been falling greater than two (2) years overdue throughout 2020, Bodies Corporate have a further two (2) month grace period in which they will be required to make up the backlog of levy recovery action that would have been commenced in 2020 under normal circumstances. They will be required to commence proceedings before 28 February 2021.
Bodies Corporate should carefully consider whether they want to postpone levy recovery proceedings for early 2021. By leaving levy recovery actions to sit until early 2021, Bodies Corporate run the risk of being unable to get back on top of this backlog before 28 February 2021. Bodies Corporate should consider whether it is appropriate instead to adopt a “business as usual” footing to avoid a backlog in early 2021.
Bodies Corporate now have several additional tools to manage the economic impact of the COVID-19 pandemic. However, Committees should carefully consider whether it is appropriate to exercise these powers. Not all persons will genuinely have suffered hardship as a result of the COVID-19 pandemic. The last thing Committees wants is for their Body Corporate to be unable to meet its administrative and running costs. Should this arise, Bodies Corporate face the much more serious risk of being placed into administration.
This article was contributed byMario Esera, Partner – HWL Ebsworth Lawyers.