It goes without saying that when there is money involved, there are likely to be disputes. That’s certainly the case in strata law, particularly in the context of levies. In this edition of the Strata Law podcast, David Sachs discusses levies and the types of disputes that often derive from them.
Transcript
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Dan Toombs: It goes without saying that whenever there is money involved, there is likely to be disputes. That’s certainly the case in Strata law, particularly in the context of Levies. Well to talk levies and disputes, I’m with David Sacks of Sachs Gerace Lawyers. David, what are levies?
David Sachs: Levies, Dan, are the monetary component of the way in which an owners corporation operates. So levies are raised at the Annual General Meeting of an owners corporation each year, and they are designed to provide funds to enable the owners corporation to carry out all of its administrative functions and to provide for the repair and maintenance of the building. And people who are looking at levies or considering levies will notice in the notice of meeting for each annual general meeting that there is a budget.
There will also be a copy of the ten-year Capital Works plan and the levies have been prepared Or the amount of the total levies will have been prepared usually by the Strata managing agent to ensure that the owners corporation has sufficient funds in what’s called its administration account and in its Capital Works account in order to fund all of the anticipated expenses over the next 12 months of the owners corporation’s life until the next Annual General Meeting. That’s the regular way in which people confront levies.
Generally, when they look at them in a meeting notice and when a resolution is made to what’s called strike those levies, that will be a total amount. And then the total amount is then divided up amongst the various lot owners. And it’s divided according to the unit entitlement that each owner has. And that’s something that people will be aware of from generally from levy notices that are issued, but also by looking at the Strata plan where the unit entitlements are distributed and specified for each of the lots in the Strata scheme in the event it’s divided up according to those unit entitlements.
And then generally, payments are made each quarter or however the owners corporation decides to raise them so that payments are made periodically through the year. And there will be payments commonly for payments payable at each quarter, one payment each quarter to the Administration fund and one payment each quarter to the Capital Works fund. And then the owners corporation has money to pay for the gardener and pay for repairs and pay for the Strata managing agent and do all of those things that are just part and parcel of the life of an owners corporation.
DT: Like most things where there’s money involved, there’s undoubtedly a range of issues that would emerge in the context of levies. What are some of those issues?
DS: Well, sometimes. One of the other types of levies that often creates conflict is where an extraordinary financial item arises for an owners corporation. But they may need to engage in some litigation or they identify a significant defect that requires repairs something that wasn’t anticipated in either the ten-year plan or in the budgets for the AGM.
And that’s when an owners corporation will be required to call a special levy in order to pay those expenses. And pick an example, if there’s leaking from the roof of a building and the waterproof membrane needs to be replaced, then the owners corporation may be looking at expenditure of anywhere north of $150,000. And so they have to raise a special levy for that money to be paid. And often, because the work can’t wait 12 months to be carried out, often the money will have to be paid quite quickly. And so people in their own personal budgeting may get a shock that they have to contribute a significant sum that they hadn’t planned for at the beginning of the year. And that can often be a cause of conflict about the timing of those payments, whether people can in fact afford it, whether the total amount of the expenditure is reasonable.
And it’s something that I certainly see. There are people who object to the amount of payments, object to the times in which they’re done, object to the way in which decisions were made to commit to these expenses. That’s certainly one of the problems.
Another problem that comes out up is where there are lot owners, like in all walks of life where some people pay their bills on time and some people don’t and some people can be quite intransitive about making their payments.
The end result of that, of course, is that if a lot owner doesn’t pay a levy then the owner’s corporation is going to come up short with the amount of money that it’s got. But an owners corporation still has to repair and maintain the building. It still has to pay the strata manager, it still has to pay the concierge or the building manager or the cleaners or any of those people. It still needs to get the building painted. And if it doesn’t have enough money to do that because a person or persons are not paying their levies then that will be to the detriment of everybody.
So there needs to be an owners corporation needs to manage itself properly to ensure that those difficulties are kept to a minimum and that people who do need time to pay or who are intransitive are dealt with appropriately so that the owners corporation funds are maintained.
DT: In the context of the work that you and your colleagues do at Sachs Gerace, what are some of the cases that will give listeners, I suppose, a practical example of the matters that perhaps end up in litigation or in dispute.
DS: Whenever money’s involved, Dan, there’s always a variety of disputes that can arise. But I can tell you about a couple of them.
One is that if an owners corporation makes a mistake in sending out levies or asking for the wrong amount of money or sends the levy notice to the wrong address or there’s some administrative failing, often additional charges will still be levied on the lot owner interest or a late payment fee because there’s administration costs that have been incurred and they’re things that are provided for in the Strata Schemes Management Act or provided for in the bylaws. But objection is taken by the lot owner to have to pay those charges which they see as not being their fault.
There’s recently been a case in the tribunal where it has determined that in accordance with its general dispute resolution power, it can in fact remove stature charges that are lawfully made under the Strata Schemes Management Act or lawfully imposed under the bylaws in order to fix the consequences of problems that were not caused by the lot owner. So that’s one thing that at least a lot owner will know that if this dispute continues then it can be fixed up by the Civil Administrative Tribunal.
Another one that can be quite tricky and in fact the law in this is unsettled at the moment is whether the owners corporation can make a bylaw that applies for differential payment of certain expenses incurred by the owners corporation. And that arises from a case that I ran on behalf of the Strata scheme up in the northern parts of New South Wales where it had various sections that were really unrelated.
There were parts of the Strata scheme that were used for holiday accommodation and then there were parts of the scheme that was used for residences and then there was another part that was used for commercial operators, cafe, and what not. And there was a hot water service that was providing hot water to the holiday accommodation and yet the metre for that was on common property and was being charged to the owners corporation. So there was a dispute about whether the residences who weren’t using that hot water or the commercial operators who weren’t using that hot water either should be required to contribute to those hot water charges or whether there should be a differential charge levy imposed on the owners of the holiday rental. So only they paid that part of an owner’s corporation expense. And that was a case where it was determined that the Tribunal could in fact make orders to correct that apparent anomaly. And it was suggested as an aside that an owners corporation could make a bylaw that would provide for differential charging of owners corporation expenses to different units.
Just earlier this week the Civil and Administrative Tribunal said that that can’t possibly be the case and in fact, an owners corporation is not able to provide for differential charging of levies. And they use the old chestnut examples that people on the ground floor of a building don’t use the lift, but they’re still required to contribute to its repair and maintenance. And people who never use a swimming pool are still required to pay for the chlorine and et cetera, et cetera, or the pool. So it’s not a matter of use of pays. It’s a matter of a binding agreement that owners have entered into at the beginning to pay, according to their unit entitlement, for all of the expenses of the owners corporation. And in fact, the only way in which there can be a differential treatment is where an owner uses a lot in a particular way that increases the insurance premiums for the lot.
And typical examples are if a lot is used for sex services or is used as a tattoo parlour, and they are commonly treated differently by insurers, and they will charge an additional premium for the property if anybody operates any of those businesses from the Strata scheme. And so the act itself provides that the owner of a tattoo parlour, for example, can be required to pay the additional premium charge for that particular use.
DT: David, matters like this don’t always end up in the Tribunal, though, do they? You know, there is an opportunity to resolve these things, be it through mediation or through lawyers negotiating. Do you see that happen fairly regularly in practise?
DS: Yeah, of course, when people are talking about money, then money is a very variable thing, and it’s always amenable to compromise. And people definitely should try to reach some compromise before things get out of hand.
I’ll speak to you about a completely ridiculous example that definitely would have benefited from some intervention much earlier. A type of case that I spoke about towards the beginning relating to an interest in a late payment charge that was imposed and then objected to by a lot owner. And that was allowed to fester for, good God, 12 years. So that a charge that was, I don’t know, $50 or $60 back then has eventually blown out to be $1,500.
And of course, the owner throughout that whole period was being treated as unfinancial and therefore lost the voting rights in the affairs of the owners corporation. And that case ended up as a tack on to some other Distrata dispute in the Supreme Court of New South Wales.
Indeed and plainly an unsatisfactory and extravagant way of resolving a dispute that started off being worth $50, It’s crazy. So certainly a bit of legal advice at the beginning of these disputes so that people understand what their rights and obligations are, and if it’s being treated sensibly by the other party in the equation, then those things can be knocked on the head immediately.
DT: And that’s what Sachs Gerace do, what’s of experience in this regard.
DS: Exactly. And that’s why we try to adopt at all times an objective and informed approach to giving people legal advice. Not that we’re charging people up for litigation, but so they understand exactly what their rights and obligations are and then they can measure that against what’s being asked of them. And then I think if people are being sensible and lawful and following the rules according to their letter, then you would expect that matters can be avoided or disputes can be avoided, or if they are, they can be nipped in the bud very quickly.
DT: David, thanks for joining me.
DS: Thanks, Dan.
Outro: Thanks for listening. If you have any questions or need more information, simply call Sachs Gerace on (02) 9331 5177.
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