The impact of unpaid strata levies and debt recovery processes

Here is a look into the importance of strata levies, what happens when owners do not pay, and how arrears should be handled.

Owners corporations and body corporates must charge fees or levies for each lot. These fees and levies are used to maintain and improve common areas, cover administration costs, and perform other tasks associated with managing the property.

Paying strata levies is not optional. If you own a property that is part of an owners corporation or body corporate, it is a legal requirement. However, sometimes late or non-payments can arise due to financial hardship, forgetfulness, or a wilful refusal to pay in the case of a dispute. When someone doesn’t make their levied contributions, it puts pressure on everyone involved with the owners corporation or body corporate. This is because levy arrears can delay important repair works or maintenance services, which can potentially cause the property to fall into disrepair.

Therefore, if an owners corporation or body corporate has significant levy arrears, it is important to recover that debt to help keep the property running smoothly.

What are strata levies?

Strata levies

Strata levies are periodic payments made by all owners to cover the costs associated with managing and maintaining an owners corporation or body corporate.

These contributions are determined at each AGM, where the amount and payment schedule are proposed.

Special levies

Strata, owners corporation, or body corporate properties may need to raise special levies to cover unforeseen expenses or instances of insufficient funds in the trust account.

These are proposed at a general meeting and are in addition to the regular levies paid by the lot owners.

What do strata levies cover?

The contributions raised from strata levies are generally split between the administrative and capital works/sinking fund, which is used to cover tasks such as:

  • Maintenance and upkeep of the building.
  • Periodic or unexpected repairs.
  • Building insurance.
  • Strata, body corporate, or owners corporation management fees.
  • An onsite facilities manager.
  • Long-term capital repairs and significant upgrades.
  • Cleaning, landscaping, and upkeep of any common areas and amenities.
  • Utilities to any common areas (for example, electricity to run elevators or lighting common areas).

Lower levies aren't necessarily a good thing

If levies are set too low, the building may not be adequately maintained. Following a maintenance plan is the best way to ensure enough money is raised to adequately fund the needs of a property. The plan should detail the condition of building assets and the likely timeframe and cost of their repair or replacement.

The importance of paying strata levies on time

Paying strata levies is not optional, but a legal requirement for all owners within an owners corporation or body corporate property. The effective running of the property depends on these contributions being made, in full and on time. Much like a company, an owners corporation or body corporate may need to borrow from a financial institution if there are insufficient funds to cover expenses.

Despite this, many lot owners fall into arrears because of financial hardship, forgetfulness, or a wilful refusal to pay, in the case of a dispute. When someone doesn’t pay, it puts pressure on the whole scheme, which can hold up maintenance requirements and affect the upkeep of a property.

The impact of unpaid strata levies

Failure to pay strata levies can impact both the individual owner and the overall owners corporation or body corporate property. For example:

  • It can put financial strain on the other owners, who may have to make up for the shortfall.
  • It could create a deficit in the budget and might mean the property can’t be maintained.
  • The committee may be unable to pay contractors like plumbers and electricians.
  • Reclaiming unpaid levies can cause financial damage, as there are costs associated with debt collection for levies in arrears.
  • An owner who has not paid due levies is deemed ‘unfinancial’ and would therefore lose the right to vote on most matters and cannot be part of the committee.
  • The owner can bear interest until it is paid (unless the owners corporation has voted at an AGM to waive penalty interest).
  • When owners don’t pay, it causes friction and negative sentiment with their neighbours and property owners.
  • Although it’s not common practice, it is theoretically possible to force the sale of a property to recover unpaid levies.

Owners corporation and body corporate debt collection process for unpaid strata levies

The steps and actions to recover debt typically begin with a motion at an annual general meeting, which authorises the committee or strata manager to issue notices, collect payments, and follow up with debt in arrears. This can usually result in the following:

  1. A compliant levy notice will be issued to lot owners within the legislated timeframes.
  2. An overdue letter or levy notice reminder will be sent to the lot owner, requesting payment.
  3. The debt may begin accruing interest, if it is payable.
  4. A second overdue letter may be sent.
  5. The debt may be referred to a debt collector.
  6. A solicitor may send a letter of demand.
  7. The committee may decide to take the debtor to the small claims court.
  8. Once a judgment is obtained, the legal system will take steps to enforce it.
  9. If the debt remains unpaid, a lien (a right to hold the property of another as security for performance or an obligation of debt payment) may be registered over the property.

Strata levy collection laws by state:

Strata schemes across Australia are governed by state-specific legislation that outlines the responsibilities of owners corporations (also known as bodies corporate) in issuing levy notices and recovering unpaid levies. Here is what you need to know for each state.

Issuing levy notices:

  • For strata levies, owners corporations must provide lot owners with written notice at least 30 days before the due date.
  • For special strata levies, owners corporations must provide lot owners with written notice at least 14 days before the due date.

 

Recovering unpaid levies:

If levies remain unpaid, the owners corporation can initiate debt recovery proceedings.

  • However, before commencing legal action, they must provide the lot owner with at least 21 days’ notice of their intention to recover the debt.
  • Additionally, the owners corporation must consider any request from the lot owner to enter into a payment plan, unless it is unreasonable.
  • Owners corporations can also recover debt through a court order via the NSW Civil and Administrative Tribunal (the Tribunal).

 

Penalty interest:

  • Section 85 of the Strata Schemes Management Act 2015 provides that the maximum rate of interest that an owners corporation can charge on overdue fees is 10 per cent per annum. This cannot be increased or decreased. However, they can vote by way of a special resolution not to charge it.

Issuing levy notices:

  • Body corporates must provide lot owners with written notice at least 30 days before the due date.
  • Body corporates can include discounts on the levy notice to incentivise owners to make payments by the due date. This needs to be passed at a general meeting and cannot be over the instalment amount by 20%.

 

Recovering unpaid levies:

A body corporate can initiate debt recovery proceedings on levies that are not paid within 30 days from the due date.

  • If a debt has been overdue for two years and 30 days, the body corporate may proceed with legal action within two months after that period.
  • The body corporate may also recover from the owner any reasonable costs incurred in recovering the amount. 
  • The body corporate can lodge a debt dispute with Queensland Civil and Administrative Tribunal (QCAT) or the courts.
  • If the debt is in dispute, the owner or body corporate can apply to the Office of the Commissioner for Body Corporate and Community Management for conciliation, but only if debt recovery has not commenced.

 

Penalty interest:

  • The penalty interest is a set rate of no more than 2.5% for each month (30% per annum) that the contributions are overdue.

Issuing levy notices:

  • In Victoria, lot owners must pay owners corporation fees and any associated charges within 28 days of the date on the fee notice.
  • A final fee notice can be sent any time after the expiry of 28 days, stating that the owner must pay all overdue amounts, including interest and other charges, and the penalty interest that has been applied. It must state the intention that the owners corporation will take legal action if it is not paid in full within 28 days.

Recovering unpaid levies:

  • If levies remain unpaid, the owners corporation can initiate debt recovery proceedings.
  • If contributions are still not paid 28 days after the final notice.
  • The owners corporation is then entitled to commence levy recovery proceedings at the VCAT or a magistrate’s court under Part 11 of the Act to recover levies, plus interest, and reasonably incurred legal costs.

Penalty interest:

  • The maximum rate of interest that an owners corporation can charge on overdue fees is determined by the Penalty Interest Rates Act 1983. Currently, this is set at 10 per cent per annum.

Issuing levy notices:

  • The body corporate should provide lot owners with a written notice outlining the amount and due date of their levy contributions.

 

Recovering unpaid levies:

If levies remain unpaid, the body corporate can initiate recovery proceedings if the debt is $50.00 or more and authorise the body corporate manager and/or the committee to do action collection processes as per the scheme’s agreed terms:

  • Issue the first arrears notice 20 days after the contribution due date. 
  • Issue a second arrears notice 50 days after the contribution due date. 
  • Issue a third arrears notice 80 days after the contribution due date. 
  • Issue final notice 110 days after the contribution due date – via email (if applicable) and registered mail. 
  • Charge all reasonable costs incurred by the body corporate when collecting/recovering the unpaid contributions and interest to the unit owner.
  • The body corporate can further authorise the committee to approve payment plans and waive interest and recovery costs, including penalties, legal, and other expenses arising out of the collection/recovery of unpaid contributions from the unit owners’ account
  • The body corporate can make small claims of up to $25,000 and escalate levy disputes through the Northern Territory Civil and Administrative Tribunal (NTCAT).

Issuing levy notices:

  • The body corporate should provide lot owners with a written notice outlining the amount and due date of their levy contributions.

 

Recovering unpaid levies:

If levies remain unpaid, the body corporate can initiate debt recovery proceedings.

  • The body corporate can make an application for relief through the Recorder of Titles to make orders for payment.
  • Further disputes and appeals can also be made to the Tasmanian Civil and Administrative Tribunal within 30 days of the decision following an application for relief.

 

Penalty interest:

  • The body corporate can charge interest on overdue levy payments at a reasonable fixed rate passed by resolution at a general meeting.

Strata payment plans

The  body corporate or owners corporation may recover the cost of overdue levies through a payment plan. This approach can provide support to owners who are genuinely experiencing financial hardship and also help get the property’s funds and accounts back on track.

A payment plan is usually a request that needs to be approved by the committee. This would then allow a property owner to repay their overdue levies via periodic instalments over an agreed timeframe. Usually, an application needs to be completed in 12 months. However, this timeframe can be extended if the body corporate or owners corporation agrees.

 

Here are the four steps to making a strata payment plan for levies and fees.

  1. The lot owner must ask for a payment plan and include details about their situation and why it is needed.
  2. The plan must contain specific information according to the relevant legislation. The strata manager can provide a proforma payment plan that meets these requirements.
  3. The owner must complete and return the form to the strata manager.
  4. The owner must make regular payments according to the plan, or else legal proceedings may be instigated.

Payment plan for levies and arrears

To support those experiencing financial hardship, owners from our eligible branches can submit an online payment plan application to the committee for consideration and approval. Please check the eligible branches that can use this form.

Proactive measures to avoid strata levy arrears

There are several steps owners corporations, body corporates, and strata managers can undertake to minimise levy defaults, including:

  1. Keeping up-to-date records of owners.
  2. Providing timely notices.
  3. Facilitating easy payment facilities.
  4. Educating owners about what levy contributions are put towards.
  5. Future planning so that levy increases are incremental.
  6. Following a maintenance plan to minimise the risk of special levies.

What should you know about strata debt recovery for levies and fees

Define a process for debt recovery: 

Recovering unpaid levies can be difficult, especially if there is no predefined process in place to anticipate shortfalls. Hence, the owners corporation or body corporate should take a proactive approach and agree upon the procedure for debt collection in an annual general meeting.

 

Define the by-laws and rules: 

Levy payment-related matters should be clearly outlined in the by-laws and building rules so that all owners are aware of the process, their responsibilities and the consequences of breaches. This makes it easier to collect on unpaid levies when they happen and helps prove due diligence, especially if the matter goes to court.

 

Weigh the costs of recovery: 

It’s important to weigh the costs resulting from unpaid levies against the cost of recovering them. If your levies are relatively low, they may not be worth chasing until they exceed a certain amount. This is because the costs involved in recovering them usually outweigh the amount in arrears.

 

Allow flexible payment options: 

The larger the debt, the harder it is to recover. People can more easily find a few thousand dollars than tens of thousands. Some state legislation requires owners corporations or body corporates to allow a flexible payment plan for owners who have fallen into arrears owing to genuine concerns. However, it is best practice to provide this as an option regardless.

 

Know when to get active about unpaid levies: 

You should consider starting the collections process when levies have been unpaid for 30 days or more. Each of these steps has costs, so you need the help of an efficient debt collections manager who understands your needs, and has a strong track record of collecting payments before they go too far.

Strata levy debt recovery services

For more than 70 years, Kemps Petersons Receivables has consistently collected 85% of debts without having to initiate court action. Our goal is to recover monies as quickly, efficiently, and cost-effectively as possible for your strata, owners corporation, or body corporate property.

Join the community of over 185,000 property owners who have partnered with us to help care for their properties.

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Conclusion

Depending on the size of your complex, unpaid strata levies could add up quickly. It’s best to address any issues and chase payments promptly. Since the first Australian strata scheme was established in 1948, we’ve come a long way in our knowledge and experience across various property types. Whether you are new to strata management or an active committee member, we have developed an extensive library of resources to assist you.

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This article is edited by Lauren Shaw Regional General Manager and Licensee-in-Charge on May 2025.

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