There’s a lot of chat at the moment about the pressure on people to pay levies when they might have lost their job or their income has been reduced.
I was chatting to someone in the NSW government the other day and we realised some unexpected consequences of not paying your levies have come up.
One obvious outcome is that if the owners corp is run on a super-tight budget, and the “money in” is reduced because a significant number of owners aren’t able to pay, then the strata scheme’s ability to pay its bills could be severely compromised.
The immediate consequence could be a reduction in services with, for instance, cleaners and concierges cut back or or reduced.
Apart from the devastating effect on contractors and their staff members’ incomes, the value of your apartment would then take another hit in a rapidly cooling market as the whole block started to look less attractive to potential buyers than it should.
Also, cutting cleaning services and communal facilities might seem unwise at a time when we are battling a highly infectious virus that can be transferred via commonly touched surfaces.
And won’t we need on-site managers, security and concierges even more when we are all being encouraged to stay home.
If you cut back on staffing, those job losses would then have the kind of knock-on effect that our politicians are desperate to avoid, as people lose jobs and – in the broader picture – the economy is nudged further towards a tailspin.
But in the low-levies finances stratasphere for which you may well have voted, the concept of “essential services” becomes somewhat nebulous, especially when there isn’t enough money to pay the bills.
Also there might also be a significant effect on the local politics of a strata scheme. In most states, if you don’t pay your levies, you can’t vote at a general meeting or, if you are a committee member, at committee meetings.
In NSW, at least, if you were nominated for election by another member who becomes unfinancial, you can’t vote until their financial situation is resolved (Strata Schemes Management Act, Schedule 2.9 ) even though you are up to date.
That unfinancial member is obliged to inform the chair that they are behind with their levies.
So you can see it could get very messy, very quickly if even a few owners were to fall behind with their levies. And with by-laws relating to short-term letting now firmly on the table, the “unintended consequences” could be the disenfranchisement of owners whose votes could be vital.
Specifically, if you are an owner who has depended on short-term lets, directly or indirectly, through holiday hosts who sub-let your property, you are probably already feeling the financial pinch.
If that means you can’t pay your levies for a while, your chances of preventing a ban on holiday lets in your building will be severely diminished (not that that’s a bad thing, I hasten to add).
There are options available to owners corporations to ease the squeeze on levies (as previously outlined here), but I believe our state governments are looking at ways of keeping the wheels turning.
Some strata managers, like our sponsors Strata Choice, will not be charging late fees for delayed levies payments but the question of pursuing penalty rates for overdue levies lies with the owners corporations, for now, at least.
As it stands, the NSW law says that penalty rates of 10 percent must be imposed unless the owners corporation says otherwise. In Victoria and Queensland, it’s more a case of the Owners Corp or Body Corporate deciding to impose penalty charges up to capped limits.
However, if the strata schemes have decided at some point to impose penalties for all late levies, then they will be in the same boat as NSW schemes, where they will have to unpick that decision at general meetings.
So, let’s assume the majority of owners corps decide to do the humane thing and not impose penalties. What they are effectively doing is offering interest free loans to their owners.
But what if there’s a lot of owners in the same block in financial strife, and no “contingency” fund or maintenance funds there as back-up.
Ideas being floated at the moment include making it easier for owners corps to access their maintenance funds for day-to-day expenses, without having to pay them back within three months, as at present.
Another is to allow owners corps to take loans only to cover those owners who need them, with only those owners paying back the loans (although this would require a law change as it’s not permissible under current laws).
Finally, there’s the thought of offering a moratorium on loss of voting rights for the duration of the crisis.
And anoither idea floated by yours truly perhaps banks could be persuaded to take over levies payments and add them to mortgages, for the duration.
It’s a machine with many moving parts. But, if nothing else, this may make owners more aware of where their levies go and what they actually pay for.
As for levies relief, watch this space.