Proposals before the NSW parliament to allow strata owners to propose a repayment plan for outstanding levies will divide communities. Those who pay on time will resent being used as a banker for those who can’t afford their obligations as owners of common property.
The proposal will put pressure too on strata managers and treasurers trying to balance the books. Unlike companies, and indeed the nation, there is no overdraft for strata entities.
Owners corporations are finely tuned. They are not for profit and seldom end the year with a surplus. In the case of a deficit it’s easier to dip into the capital works fund to make up the deficit rather than strike a special levy and admit to a budgeting error.
Here are five things we know from other states will happen if this becomes the law:
- Some people will stop paying on time and ask for time to pay because they can
- Strata managers and committees will spend unpaid time negotiating repayment arrangements
- Accounts will go into deficit if people don’t pay on time and capital works savings will be pilfered to balance the books
- Debate at meetings about these proposals will get heated and there will be disputes before the tribunal about payment plans that have been rejected
- Committees will have to watch the privacy laws if they collect sensitive information about peoples financial circumstances.
To combat the collateral damage of this kind but ill-advised accommodation strata entities will have to budget for bad debts, charge interest and implement very clear guidelines on what will and won’t be accepted when impecunious owners come looking for relief.
Smart managers will advise owners corporations to impose a discount by increasing the budget by 10% and allowing that sum as a discount for on time payment. This is in effect a penalty of 10 % for not paying on time and can be charged on top of interest on late payments. It’s always been available in NSW but seldom used. That’s about to change.
Never get caught between a strata owner and a 10 % discount on levies, you will get hurt.