The big problem in sectional title schemes, says Michael Bauer, general manager of the property management company IHFM, is that a minority of members, often living an unsustainable lifestyle and paying their hire purchase, retail and other accounts only as and when it suits them, adopt the same lackadaisical approach to their sectional title levy payments.
“Some members of sectional title schemes,” he said, “have legitimate and serious reasons for being unable to pay their levies, but whatever the reasons, the trustees have the fiduciary responsibility to ensure that their body corporate is liquid and remains solvent. They must, therefore, enforce strict credit controls and treat all non-payers equally.”
“In the long run,” added Bauer, “it is these non-payers who suffer the most because, when put under pressure from the scheme’s lawyers and finally made to pay, they will find themselves (in terms of the Prescribed Management Rules 31 (5)) also having to pay the compound interest on their debt, the legal costs incurred by the trustees and their attorneys, as well as all costs involved in the recovery of their levies and other amounts owed by them. In addition, they will find themselves with a bad credit record which will be picked up by all future credit providers.”
Any sectional title owner likely to fall behind on his levies, said Bauer, should immediately contact the trustees, or their managing agent, to try and ‘make an arrangement’. If this is not done and the debts continue to remain unpaid for a significant period, said Bauer, the trustees have no choice but proceed with the collection process.
“The law does provide remedies for body corporate creditors, but these are always time consuming and expensive and need additional funding.”
“All too often,” says Bauer, “trustees have not budgeted for a reserve as well as working capital. IHFM recommends budgeting for a 10 to 20% addition to the annual levy (depending on the size of the scheme) to ensure that the body corporate remains solvent and has the funds to cover both levy arrears and the legal fees which, although eventually recoverable, do mount up in the interim.
“Trustees have to be strict and deal with debtors in the quickest possible way to ensure that the cash flow of the body corporate is secured. It has to be made clear that they have a policy of zero tolerance for defaulters.”
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Hi there,
I’ve recently become the chairman of my complex and we have a huge issue on outstanding levies.
We have started the legal process a long time ago in trying to recover these costs but dont seem to be getting anywhere.
These are my concerns:
1 – My managing agent has offered to purchase this debt so that we can become liquid again. Does a managing agent possibly have a vested interested in servicing this debt and will it result in them having more power in the complex? Is this a risk to us?
2- How do I know if the debt collection is being driven as quickly and effectively as possible?
Simon
If people do not pay their levies does the body Corp have the power to disconnect their elactriity as the electricity is part of the levy bill?
Hi Simon
Are you sure your managing agent has offered to purchase the debt, or introduce the Body Corporate to a levy financing company? If the MA a registered debt collector? The best thing to do is to get an attorney involved in this matter, as members of the Body Corporate may be significantly affected should the managing agent / debt collector purchase such debt.
With regards to debt collection feedback to the Trustees, monthly reports should be emailed through to keep trustees informed of any progress pertaining to this matter. Perhaps a solution is that after 2-3 months with debt collection, the defaulting owners are handed over to attorney’s for collection.
Hi,
I hope you can give me some advice.
We have followed the correct procedure to get a non paying owner in our sectional title complex to get him to pay. He is a lawyer, everytime he makes arrangements to pay his outstanding levies, he pays the first two months and then stops, we then start the procedures to hand him over and then he starts paying again. We have told him that he is not keeping to the agreement but in other articles it is mentioned that these lawyers can keep the case in court for ever and the body corporate will eventually run out of money and will loose in the long run.
What can we do. I am really fed up, what is really getting to me is that they are always going away on holiday and renovating but no money to pay the levies ? and then when he is addressed about the levies he gives us attitude about it. As mentioned we have followed the correct procedures and then he comes back with paper work to say that he has made arrangements and we have to stop the handover procedure only for him to stop making payment.
We have endless paperwork in his file at the managment agency. Any advice ?
Thank you