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  • #49034
    nemisis
    Flatchatter

    With Coronavirus (COVID-19) causing global economic devastation and the big banks have announced potential deferment of payments for up to 6 months, where does this leave Strata levy payments?

    “Aussies struggling to keep their head above water as a result of the coronavirus pandemic have been thrown a lifeline after NAB announced its customers would be able to pause their mortgage repayments for six months.”

    Is it time Strata Management offer some advice to Strata Boards in regards to something similar?

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  • #49407
    Strata Answers
    Flatchatter
    (from NSW)

    How to reduce levies in this Covid 19 World ? or indeed should levies be reduced at all ?

    We are starting to see job losses impacting on the ability of both owner occupiers and  landlords to pay their levies – owner occupiers who have lost their jobs and landlords whose cash flow from tenants they cannot evict dry up.

    The core question for Committees is …..Should any levy relief be universal for all owners or selective for only those demonstrating financial hardship ?

    If universal relief is required, then schemes need only to call an EGM to rescind past levy resolutions and resolve upon a new levy structure.

    Only an ordinary resolution is required (same as when levies were originally resolved ) but the greater challenge might be how to hold an EGM with appropriate social distancing.

    If the OC has already resolved to hold electronic meetings, then this is straightforward, but if it has never passed this resolution then it needs an “in person” EGM to resolve to permit electronic general meetings !  ( Chicken and egg situation…. but fortunately there is  a neat work around for this involving the SM holding proxies  and being the only attendee in person at an EGM ! )

    So back to the issue of reducing levies….Reduce them for all owners or just recognise the financial hardship of certain struggling owners – the latter avoids giving relief to your scheme’s “serial recalcitrants”.

    Recognising straightened financial circumstances can be as simple as the Strata Committee resolving not to proceed with recovery (for now at least) on a case by case basis and need not involve formal payment plans. There is no obligation on a Strata Committee in NSW to collect unpaid levies; likewise there is the discretion to waive statutory interest ( some would hold that the waiver of interest  can only agreed by owners in general meeting, but that still allows interest waiver to be used as a tool for  financial relief ).

    Whether it is a general  levy reduction or recognition of individual financial hardship,  a scheme’s cash flow will be impacted and, as Jimmy notes above, it may mean dipping into the Capital Works (Sinking) Fund pot. Just remember to fix up the Capital Works Fund Plan so that it aligns with the new levy realities

     

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    #49045
    Jimmy-T
    Keymaster

    Well, yes, it would be good to get some advice but there’s a limit  to what that advice might be.

    Basically, it comes down to whether there is enough spare cash in the kitty to carry non-payments and still pay all the block’s outgoings. Since most strata schemes run on having very little excess cash in hand, it might be difficult to give the whole owners corp a ‘levies holiday’.

    However, theoretically, if your maintenance (sinking) fund was in good shape, with no imminent projects about to drain it, you could use that money to keep the building going once you had legitimised the levies holiday.

    To do so would probably require an application to NCAT under a Section 87 (below) to vary the contributions that had been agreed at the last AGM. I would imagine an application by an owners corp with a clear majority of owners supporting it would be regarded sympathetically (although you never can tell).

    But there are rules about borrowing from the maintenance fund  to boost the admin fund, basically that it has to be paid back within three months (although creative accounting can find ways around that). See Section 76 (2) below.

    Also, individual owners could apply to the committee for some leeway in paying their levies in cases of extreme hardship, for instance, allowing them to pay their quarterly levies in arrears without penalty interest being applied. That comes under Section 85 (3) and (5) of the Act.

    What it really comes down to is whether there is spare cash lying around that could be used in the short-term.  If there isn’t then the question is moot unless all your suplliers and contractors are prepared to go without pay too.

    76 Use of administrative fund or capital works fund for purposes of other fund
    (2) The owners corporation must, not later than 3 months after the transfer or use, determine the amount to be levied as a contribution to the fund from which the transfer or use was made to reimburse the amounts paid from the fund. Section 81 (3) and (5) apply to a contribution determined under this subsection.

    87 Orders varying contributions or payment methods
    (1) The Tribunal may, on application, make either or both of the following orders if the Tribunal considers that any amount levied or proposed to be levied by way of contributions is inadequate or excessive or that the manner of payment of contributions is unreasonable:
    (a) an order for payment of contributions of a different amount,
    (b) an order for payment of contributions in a different manner.
    (2) An application for an order may be made by the lessor of a leasehold strata scheme, an owners corporation, an owner or a mortgagee in possession.

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