There’s more than insurance commission income for the chop for strata managers in NSW. Additional income from chasing levy arrears is also now likely to go. This is a double whack for the big strata managers, some of whom own debt collection agencies and law firms. The ramifications will not be limited to NSW.
The attack on levy arrears is coming from two sources –
· new strata laws passed in February 2025 that will come into effect later this year; and
· AI, now that the first completely AI powered law firm has been registered and approved for operation in the UK.
Let’s consider law reform first. The new strata laws will end the practice of charging lot owners for arrears notices and legal fees.
The OC will have to pay these, unless a court order is made against the lot owners.
As only a small percentage of levy collection matters actually get to court, this will be a big change to the landscape. These are some of the likely consequences (none of which I suspect were intended by government) –
· OCs will be looking for more cost-effective collection practices and will reject the long drawn out (additional income earning) recovery processes presently employed. As a result, debtors will get less time to pay and less leniency.
· Larger OCs might choose not to chase levy arrears at all, preferring to let interest run at 10 percent per annum, and collect the levy, plus interest, when the debtors lot is ultimately sold. A 10percent return is 10 percent more than they are getting on their funds at the bank.
· Some OCs will introduce discounts by grossing up their budgets by 10 percent and offering a 10 percent discount for on time payment. This is effectively a 10 percent penalty to late payers which they will cop on top of interest at 10 percent. This technique is used widely in Queensland and works well for them.
Regardless of where in Australia you practise, the other news this week impacting levy arrears comes from the new world of AI.
Garfield’s AI has become the world’s first registered AI law firm, and is generating legal letters of demand for £2 (A$4.10). For context, leading Sydney strata lawyers are charging $50 per letter.
Garfield’s AI is also filing debt collection lawsuit claims in UK courts, and preparing written submissions for legal arguments, at a fraction of the costs charged by humanoid law firms.
All this means more work for strata managers, and less scope for additional fee income. It’s another nail in the coffin of the existing strata management business model. The days of going in with a low base fee and charging that much again for additional services are numbered.
Smart managers are changing their business models quickly. The choice is simple – do you want to be Apple or Kodak? Samsung or Nokia? Google or Encyclopedia Brittanica?
Michael Teys advises strata management businesses on improving profitability through professionalisation and streamlined operating systems.
He has more than 30 years’ experience as a strata lawyer and academic and has owned 11 strata management agencies throughout Australia. He has a Master of Philosophy (Built Environment) and Bachelor of Laws. He lectures and writes widely about strata management issues in Australia and internationally.
