As Body Corporate Lawyers, we’ve heard every excuse imaginable.
Our top 10 favourites are:
- “I didn’t pay my levies because no one respects me.” (Sorry – respect has nothing to do with your legal obligations.)
- “When I bought the unit 20 years ago the levies were $150 a quarter and now they are $500 a quarter – I’m being robbed!” (Sorry – it’s called inflation.)
- “I didn’t approve the budget. I’m only paying what I think is fair and the other owners can pay the rest.” (Sorry – majority wins in strata living.)
- “What do you mean I haven’t paid my levies?? I paid them once two years ago!!” (Sorry – levies keep falling due – it’s not a once off expense.)
- “The Body Corporate doesn’t cut my grass, so I’m not paying my levies.” (Sorry – the Body Corporate isn’t responsible for cutting your grass.)
- “The gardener assaulted me – the weed whipper stirred up the grass and I was hit by the flying grass when I walked to my car. I want compensation, I have gone to the police and I am not paying my levies until I get justice.” (Sorry – but weed whipper incidents do not constitute an offset for levy liability.)
- “The letting agent has not paid my rent, so if I am not getting paid – neither is the Body Corporate!” (Sorry – the Body Corporate isn’t your letting agent or tenant, you can’t offset one against the other.)
- “I gave my time to the Body Corporate and they didn’t pay me, so I am deducting the value of my time against my levies.” (Sorry – but trimming your bushes does not offset your levies.)
- “My spouse and I are going through a divorce – they live there, they have to pay it!” (Sorry – but you both own the property, you are both liable to the Body Corporate.)
- “What are levies?” (Seriously?)
Owners must appreciate that it is their legislative duty to pay levies as and when they fall due. Disputes in respect to the amounts of validly raised levies need to be made at an AGM/EGM level – and not as a separate vendetta by non-payment. Additionally, an owner is not at liberty to offset from levies, any alleged or real claims the owner may have against the body corporate (such as a claim for payment of damages caused by the body corporate to an owner’s exclusive use area, consequential to a repair made to common property). Careful consideration has to be made to arguments by owners as to the responsibilities of the body corporate in relation to maintenance matters, and this is dependent on the scheme type (for example, an owner cannot impose maintenance costs on the body corporate in respect to the owner’s lot – but equally, a body corporate cannot impose a levy in respect to maintenance costs in respect to lot except in a strictly narrow set of circumstances). Importantly, owners have to appreciate the body corporate is not a charity, bank or financier – and has absolutely no obligation to grant payment plans, abstain from raising levies and/or otherwise provide financial assistance to owners.
At Nautilus Law Group, we work zealously for our bodies corporate to recover unpaid levies in a timely and cost effective manner. Sometimes, the most effective method of achieving the recovery is spending the time to educate owners. By no means is it the bodies corporate responsibility to have to “educate” its owners; however, transparency and education achieve results. When, transparency and education do not work, then the legal system must intervene.
If you have questions about body corporate levy recovery, please do not hesitate to contact our Team to discuss your matter on (07) 5574 3560 – or – by emailing our Team at Info@nautiluslaw.com.au. We look forward to speaking with you. Katrina Brown, Senior Lawyer.
On 25 May 2020, the Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act 2020 (Qld) (the JOLAA) was assented to by the Queensland Parliament.
The JOLAA amends a wide range of legislation in response to the COVID-19 pandemic, this article will focus only on the amendments to the Body Corporate and Community Management Act 1997 (Qld) (the BCCMA).
New Body Corporate Provisions
The JOLAA introduces new provisions, being Part 3 of Chapter 7 of the BCCMA, which seek to provide measures to alleviate the financial burden caused by the COVID-19 emergency on bodies corporate for community titles schemes and owners of lots included in the schemes.
The following new provisions of the BCCMA are in force from 25 May 2020, until 31 December 2020:
Sinking Funds Budgets – Section 323D allows a body corporate to adopt or adjust the sinking fund budget for the current financial year, by ordinary resolution, with only regard to the needs of the current financial year, without the requirement budget amounts to meet anticipated major expenditure for future years.
Contributions Levied – Section 323E grants the committee of a body corporate the power to extend the due date for payment of a contribution or installment to any date up to the end of the financial year, for either an individual owner who is suffering financial hardship due to COVID-19, or for all owners of all lots regardless of whether all of the owners are suffering hardship.
Penalties for Late Payments – Section 323F provides that penalties for late payments of contributions levied are placed on hold, and body corporates must not charge penalty interest for late payments between 25 May 2020 and 31 December 2020.
Recovery of Body Corporate Debts – Section 323G provides the body corporate with the discretion to postpone recovery proceedings past the usual two-year deadline. This means that even if a contribution has been outstanding for over two years and a body corporate would ordinarily be required to commence recovery proceedings (for example, pursuant to section 145(2) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld)), a body corporate may make the decision to allow an owner with further time to pay prior to commencing legal proceedings.
Power to Borrow – Section 323H permits a body corporate to borrow more without obtaining a special resolution or resolution without dissent.
When considering exercising these new powers, committees of body corporates will need to consider the individual needs of their body corporate and the circumstances of owners.
If you require assistance in understanding the application of the above mentioned provisions, or if you are a committee and would like advice regarding whether to provide concessions to a lot owner, please do not hesitate to contact Tyler Smith of our office by email at firstname.lastname@example.org or by telephone (07) 5574 3560. We will be happy to assist you.
A Call for Transparency in Body Corporate Levy Recovery
As Body Corporate Lawyers, we have the privilege of working with bodies corporate across Queensland – from small schemes, to large commercial schemes. We must, in good conscience, put it out to our fellow practitioners and the industry generally – that transparency must be improved in the production of records to owners – especially, when the owners are subject to possible levy recovery proceedings.
We know that at least two of our legal competitors, have published papers to body corporate managers that suggest a single ledger combining unpaid contributions, interest and recovery costs can be produced. We submit the difficulty with this proposal, in that the notice can be confusing for owners to understand and not reflective of an actual liability.
An example of the confusion arises over the question of what constitutes “reasonable recovery costs”. The decision of Westpac Banking Corporation v The Body Corporate for The Wave CTS 3627  QCA 73 has been advocated as a decision upholding a recovery by a body corporate of legal costs on a “dollar for dollar” basis. In fact, the Court concluded:
“The advantage given to the body corporate…of being able to recover recovery costs as a debt is qualified by the express statement that it applies only to costs reasonably incurred by the body corporate in recovering the amount of the unpaid contribution and penalty.” (emphasis added, see paragraph 60)
We remind the industry that Wave was based on the question of whether a mortgagee, which takes possession, can be held liable for costs incurred in the recovery against an owner. The Court did not vary the previous decisions that the amounts charged, and the actual conduct undertaken, must be reasonable – accordingly, a singular ledger suggesting an owner as “non-financial” without a finding as to reasonableness (or agreement) of recovery costs – can (and we suggest will) give rise to a legal liability against managers and committees who refuse an owner the right to participate, charge penalty interest and refuse discounts (because, in fact, recovery costs are not liquidated, even though costs are defined as a debt).
We have also been provided with a statement issued by another law firm, advising body corporate managers not to distribute ledgers to owners, where the recovery costs have been recorded on the singular ledger. The only way an owner can understand the claim is to see the ledger, but this law firm refuses to produce the ledgers to owners – causing an escalation of costs sought as “recoverable” against owners. This is simply vulgar and unethical, in our opinion.
We ask the industry, how is it that an owner can consider the “reasonableness” of recovery costs – if they are not permitted the opportunity to view the costs from the outset? Why is that the costs are only disclosed (noting here, we produce our invoices immediately upon an owner seeking copies) when substantial costs are incurred? Why is not standard practice for the costs and ledgers to be produced to owners on request? Is this not “reasonable”?
Furthermore, we put it to the industry, how is it that “indemnity” costs can be recoverable, when costs between firms vary? Are we all permitted to raise our legal fees to the highest of us, and then we stand united as to the bar for what is “reasonable” in the industry? Who sets what is “reasonable” in the industry? Which one of us sets the “reasonable” indemnity rate? Is it Nautilus? Is it SPG? Is it Hynes? Is it MBA? Is it Success Law? Is it OMB?
Which one of us sets that “reasonable” industry rate? It is sufficient for us merely to have a cost service agreement that says our associates charge $350, an hour – or should there be a quantification of what is being done? Is it appropriate for a senior lawyer, charging $450 an hour, to contact a client with an update – when that same update could be performed by a $110 per hour law clerk? Is it “reasonable” that the owner is charged $45 for a 1 unit call, versus $11 for the same 1 unit call?
Is it reasonable for mercantile agents to charge at lawyers rates, merely because the mercantile agents obtain a sign off by a Committee? Who decides if that is reasonable? I suggest the owner might think differently to a hostile Committee, who might not even care – if they are told the costs will be recoverable “dollar for dollar”.
How can anyone, with a commercial and ethical mind, think that litigation for $3,000, should result in legal costs in excess of $150,000? Yet, it is happening – and we have seen it (not from us, but from a competitor). The premise, of course, being that the body corporate should not be out of pocket – but at what stage is this industry of ours going to take a logical look at itself? How often could commercial strategies have been adopted, to prevent the escalation of costs from $1,000 to $150,000+? If a commercial party tried to withhold evidence, the commercial party would be penalised. Yet, a number of these ridiculous cases are premised on a lack of transparency – whether it’s a refusal to produce records for an owner’s inspection, or a refusal to produce invoices for an owner’s inspection – or simply, a refusal of the lawyer to try and listen to the owner, and find a solution which is commercially reasonable.
And what of 2.5% interest per month? That is 30% per annum (simple interest). Is this a windfall, when indemnity costs (set at who knows what standard) are recovered? If the managers charge for issuing late notices, and then charges for producing its records and secretarial duties – and these costs are all claimed in the proceeding against the owner, then what is the 30% used for? We have seen the 30% interest fall in excess of $200,000 in some large developments in which the owners are developers – what is that interest going to? Most certainly, in smaller debts, the 30% interest is necessary to settle the costs of dealing with committee issues, finance and alike. However, when we are talking substantial amounts of interest, for example upwards of $40,000, is this not intended, in part, to compensate for costs incurred…so how is it that anyone in our industry would not consider raising the use of interest as a potential negotiation tool (having regard to the costs incurred and ensuring interest is withheld to cover such costs) when dealing with committees to assist in settling matters earlier? Certainly, there is no legislative or court decisions which would suggest the offset is a requirement, but is this not what we do when we deal with our commercial clients? We try to balance the scales of justice, to deliver an outcome benefiting the whole.
But who really wins, even if a scheme recovers its indemnity costs and interest? Is no one concerned about the damage to the industry this practice could effect in the long term? Where will banks and finance institutions stand on lending to acquire body corporate properties? Will they start to set higher interest rates, to address the risks of lending (because if they end up taking possession, their liability for the bodies corporate lawyers recovering $12K, may exceed $350,000!)? If they increase interest rates, does anyone think that will be a good outcome for property values in bodies corporate? If there is less interest in the body corporate market, does anyone not see a problem in the long run for our industry?
And what of the situation when the legal fees charged by a law firm exceed the value of a property? We are reviewing a case in which the legal fees charged on what started as a $3,000 debt are now in excess of $180,000! The property is valued at $220,000! Is it not the lawyer’s duty to advise the owners that even if they win – there may be a substantial shortfall which can only be raised by a special levy charged to all owners (because not all costs charged are recoverable – as we are seeing in cost assessments and legal proceedings)? And what happens if that $3,000 debt was actually calculated incorrectly – and the court finds against the body corporate? In the present case (with $180,000+ in legal costs) – that means every owner is going to wear a percentage of that failed litigation – even the owner who was sued, and won! How can any of us see this as fair to the industry to which we serve?
We have had our fair share of extraordinarily difficult debtors who have incurred recovery costs of $20-$30K in protracted litigation. We appreciate this can and does happen. There are some owners who, no matter what you do, are habitual and defiant debtors, vendetta driven debtors and/or irrational debtors.
Our thought is this:
- The industry must make transparency a priority! If an owner asks for a document, produce it! Do not go to lawyers to avoid production, simply produce it. If an owner wants an invoice, produce it. If the cost is “reasonably incurred” – what’s the problem? Why hide anything?
- The industry must question legal practices and rates. Lawyers and mercantile agencies need to be held accountable for spending. The legal and mercantile industry in the body corporate arena must be held to commercial standards, and not “anything goes” standards. It reflects poorly on our entire industry – although only a handful of firms and agencies are abusing the situation.
- The industry need to be problem solvers, not instigators. If there is an easier solution, try it first. If that does not work, then go the distance. But at least try the easier solution. For example, if you have judgment – go back and try and negotiate again – don’t simply go to bankruptcy! Find out if the owner can raise additional finance, or consider whether superannuation access can be acquired through hardship. However, the debtor is someone’s parent, sibling or best friend; therefore, start the process by affording each debtor the disclosure and respect you would want provided your family or friend to be granted, if they were in a similar situation. If the debtor nonetheless refuses to act reasonably, then costs necessarily follow.
KATRINA ELIZABETH BROWN BA ATIA TIA SSA
NAUTILUS LAW GROUP
Suite 7, 128 Bundall Road
Bundall Queensland 4217
(07) 5574 3560
Due diligence searches are an important factor when purchasing a commercial or residential property, and ensuring you are considering all important information is key to determining that the investment is sound and whether to proceed with the transaction.
As body corporate solicitors, we strongly urge all potential buyers of strata property to consider a thorough search of the historical minutes, financials and general communications available in the strata records to ascertain how the body corporate is functioning and to appreciate what expenses are anticipated. A search of the strata agenda, minutes, resolutions and other records available on a Body Corporate Records Inspection can demonstrate how well the property functions generally (for example, is the property governed by a dysfunctional committee and/or are there owners who make resolving Strata matters difficulty and/or are there expenses unmet (such as a roof repair that has been considered, but not addressed requiring a special levy). In addition to the “standard searches,” we strongly urge clients to conduct a Body Corporate Records Inspection to find the “skeleton in the closet.”
What is a Body Corporate Records Inspection?
A Body Corporate Records Inspection is a physical inspection of all records held by the relevant body corporate. Depending on the size and age of the body corporate, the records are anywhere from the size of a binder folder, to the size of several archive boxes. While the amount of information to be reviewed can be slightly overwhelming, it is important to examine all relevant records.
What do you look at in a Body Corporate Records Inspection?
As a general rule of thumb, we suggest reviewing all body corporate records from the previous 3 years.
There are, however, key documents that we would suggest reviewing:-
Recent accounts statements for the administrative and sinking funds will indicate the current balance of each fund. Bear in mind that the administrative fund pays for ongoing, day-to-day expenses (this can include gardening, general maintenance, insurance, body corporate manger’s fees), whereas the sinking fund pays for capital expenses (such as painting).
It is important to ensure there are sufficient funds coming into and maintained in the administrative account to fund ongoing expenses (there should be numerous transactions on this account), and to check the balance of the sinking fund (which, in most cases, rises steadily – if the account is decreasing, there may be large capital improvements that have been made for you to investigate).
Review and compare the balance sheet and budget for the current and prior financial years – look at whether there are any significant changes to the budget or balance sheet that are unexplained, and to ensure that levies charged throughout the financial year are sufficient to cover the budget for that year.
The body corporate may have commissioned reports for specific inspections of the complex – such as fire inspections, general building and pest inspections, or structural reports. Review these reports in detail to check for any concerns raised or recommendations made by the report writer, and check the body corporate records as to whether these have been addressed.
Make a copy of the body corporate insurance (if you are obtaining finance, you will generally need to provide this to your lender). Review the insurance to ensure it covers all crucial elements, and check whether the building is insured for the recommended amount.
Review the By-Laws for any changes and to ensure you have received the most current copy. Remember that the owner and tenant of the complex must ensure that these By-Laws are complied with at all times.
Although this covers a broad range of information to review, it is crucial that the correspondence is thoroughly reviewed – it might only be one line in an email that is enough to raise a “red flag” of a potential issue.
Unfortunately, there is no cheap or easy way to do the records inspection – however, while combing through several years of information about the body corporate can be time consuming, it is certainly a worthwhile exercise.
Residential Case Study: Jane’s purchase of Unit 3 University Drive
Jane signed a Contract for the purchase of Unit 3 University Drive – a unit on the second floor of a two story building (which is around 15 years old), in which there are eight units. The Contract contained a specific provision that she was permitted 14 days to conduct a body corporate records inspection, and had the right to terminate if the results were not satisfactory. When Jane initially provided her instructions, she advised she didn’t think the records inspection was necessary – the building looked stable, the unit was just intended to be an investment property, and the cost of the inspection was too high (at a few hundred dollars). Despite her solicitor warning of the potential issues that could be uncovered in a body corporate records inspection, Jane confirmed she didn’t want to pay for the inspection and to only conduct standard searches.
Her lawyer telephoned Jane on the date the condition was due to confirm she was prepared to let the date pass with no action, and did not require the search to be conducted – during the telephone call, Jane had a change of heart and requested that the inspection be conducted and results advised immediately (please try to avoid doing this to your solicitor – while we appreciate that you may change your mind, short notice of a change of your instructions may result in insufficient time to conduct the search – it is best to give your solicitor as much notice as possible). The lawyer was able to arrange an inspection of the records, and attended at the body corporate’s office to inspect same that afternoon. The person inspecting the records initially went through 3 years’ worth of records (as we suggest above) but, due to the size of the body corporate and age of the building, decided to inspect records back to 4 years instead.
A one line email 2 days before the 4 year mark was to the effect of one owner of a unit complaining that the structural issues with the building of their earlier email (dating back approximately one year prior) had not been resolved. This caused concern with the inspector, who then reviewed older reports and correspondence, which indicated that there was structural cracking in the building at two places, that could only be fixed by costly repairs (in the sum of approximately $40,000).
This outcome was reported to Jane, who, on the basis that the issue was unresolved (and assumed to have worsened due to inaction over the prior 4 years), elected to terminate the contract.
Commercial Case Study: John’s purchase of Unit 1 Industrial Estate
John signed a Contract for the purchase of a commercial unit from which he was going to run a manufacturing workshop. His contract contained a 14 day due diligence clause and he gave his solicitor immediate instructions to conduct a records inspection.
Upon inspection of the records, correspondence indicated complaints from unit owners of cracking in the foundation of the central carpark of the complex. Further investigation into the reports obtained by the body corporate revealed that the cracking was caused by the foundation of the building “slipping”, and indicated that action would eventually need to be taken, but was not yet critical. The body corporate had resolved that no action was to be taken at present, but was aware that the cost to repair the damage caused and to prevent further “slipping” was in the vicinity of $100,000.
Further investigation into the balance of the sinking fund indicated that the body corporate held approximately $300,000.
On the basis that the body corporate held a sufficient sum in the sinking fund so as to fund the repairs in the future, John did not object to the outcome of the records inspection and satisfied the condition.
What happens if I find a problem when I conduct an inspection?
If your lawyer reviews the contract for the purchase of a unit or apartment before you have sign it, they will most likely recommend that either a “due diligence” or “body corporate records inspection” clause be inserted. These types of clauses allow the buyer to inspect the records and, if an issue is revealed through the course of such investigations, will give rise to rights under the contract (such as to terminate). If you are alerted to an issue with a records inspection, we recommend you contact your lawyer as soon as possible to discuss appropriate action and to obtain advice as to your options. Once you have been fully informed of these matters, you can provided instructions on how you wish to proceed.
If you are considering purchasing a property that is part of a body corporate or have any questions about body corporate records inspections, please contact our Property Team on 07 5574 3560. Thank you, Katrina Brown, Senior Lawyer.
Parking disputes are a common body corporate problem. In Queensland, they are nothing short of a nightmare.
Parking and towing remedial action do not fall within the Body Corporate and Community Management Act 1997 or the Regulation Modules.
A body corporate is entitled to make by-laws to regulate the use of common property and lots in the Scheme, but the by-laws must not discriminate against the types of occupiers or impose a monetary fine (see Section 180 of the BCCM Act). Where a contravention of the by-laws arises (such as an abuse of visitor parking), the right reserved to the body corporate falls under Sections 181, 182 and 184, which authorises the imposition of contravention notices and enforcement action.
We are aware that advocacy of by-laws imposing recovery of towing fees from parking on common property have been espoused by some firms. The problem we have with this arises from the adjudicator’s finding in Ephraim Island – Subsidiary 105, Ref 0879-2006:
“I am of the view that by-laws 19.6 (and 11.6) are invalid. Section 180 Act puts limitations on what a by-law can do. Section 180(6) states that a by-law (other than an exclusive use by-law) must not impose a monetary liability on the owner or occupier of a lot. A fine under this by-law would be such a monetary liability. There is no power in a body corporate to fine its members for breaches of by-laws.”
Therefore, if parking and a monetary fee are combined in one by-law, it may be deemed to be invalid in its entirety if sought to be enforced against an owner/occupier.
This does not mean a body corporate is without a solution. Despite Sections 135 through 136 of the Transport Operations Road Use Management Act 1995, which prohibits the locking of vehicle immobilisations and towing in broad circumstances; a body corporate has options.
Options in relation to Owners/Occupiers:
A body corporate may specify in its by-laws that an owner is not permitted to park on common property unless granted an exclusive use of that area, and proscribe that if the owner does park on common property, the body corporate shall be permitted to enter upon the area to carry out the owner’s obligations (including removal of the vehicle).
Many by-laws do not prohibit owners/occupiers from parking on common property. Therefore, in the absence of the prohibition, a body corporate may struggle to issue a contravention notice in circumstances where the conduct is not expressly prohibited.
Whether the costs associated with the exercise of the body corporate’s powers are recoverable (such as tow fees), is a question for the Commissioner or Court. Importantly, however, bodies corporate should be hesitant to tow or compromise a vehicle owned by an “owner/occupier”. The body corporate’s legislative rights arise out of Sections 181, 182 and 184 – which require the body corporate to issue contravention notices. If contravention notices do not quash the activity, then the body corporate can pursue enforcement with the Body Corporate Commissioner or Magistrate Court.
Options in relation to Visitors:
A visitor has no inherent right to occupy common property; therefore, if the limited right of access (which is often advertised by way of board over parking areas) is exceeded in duration – an “owner” – being the “body corporate” may remove the vehicle.
The difficulty arises in determining whether a vehicle is owned by a “visitor” or an “owner/occupier.” A number of bodies corporate have introduced parking voucher/passes which are required to be “displayed” to distinguish owner/occupier and visitor cars. The problem is that if the voucher or pass is not displayed and by the omission of that voucher or pass the car is deemed to be a visitor without rights, the body corporate could be liable for damages.
If repeated offences arise, and a vehicle cannot be readily determined to be a “visitor” owned vehicle, we recommend erring on the conservative side and commencing the process of contravention notices. It may be that the issuance of a contravention notice alone may alert an offending “visitor” to the issues that they may be creating for their associated “owner/occupier” – and this alert may be sufficient to stop further violations of the visitor parking license.
The entire question of towing is very dangerous, and accordingly, any recommendations we make to you need to be properly weighted with warnings. By all means, however, we can vary your current parking and introduce towing by-laws. We recommend that any body corporate encountering serial offenders seek legal advice before taking action, including, but not limited to the issuance of a contravention notice.
If you have a body corporate parking issue, we welcome you to contact our offices on (07) 5574 3560 or email email@example.com. We thank you for considering Nautilus Law Group.
Submitted by: Katrina E. Brown BA JD ATIA TEP SSA
We are pleased to report our appeal in the matter of The Body Corporate for 399 Woolcock Street CTS 34770 v Sexton & Ors  QCATA 055 (399 Woolcock) was successful. Unfortunately, the decision has sparked a new line of dispute in the industry as to whether debt recovery costs are “liquidated,” despite the Regulations granting the right to recovery only those costs which are “reasonably incurred” (See for instance, Section 145 of the Standard Regulations).
The question on appeal in 399 Woolcock was whether subsequent owners of a lot were liable to pay a body corporate debt in circumstances in which the body corporate had obtained a judgment for the outstanding levies and recovery costs against the previous owner. It was held that the body corporate was entitled to pursue the new owners, and that the recovery of the “body corporate debt” did not “merge with the judgment.”
Importantly, in our opinion, the decision did not deal with the question of what costs are “reasonably incurred” (for instance, Section 145, Standard Regulations). Whilst 399 Woolcock does settle the position that recovery costs are a “body corporate debt”, it remains the body corporate’s burden to prove the costs are “reasonable” if challenged by a debtor.
In the decision of Body Corporate for Sunseeker Apartments v Jasen  QDC 51, Judge McGill opined at paragraph 36:
“…the mere fact that the body corporate and its lawyers have agreed that costs are to be payable in a particular way, for example at a certain hourly rate for certain partners and staff, is not something which in itself makes those costs reasonable. In determining whether the costs in fact charged on a certain hourly rate are reasonable, it is therefore necessary to consider whether that hourly rate is reasonable. That is an objective matter, and does not depend simply on the fact that parties have agreed to a charge at that rate, subject only to the qualification that the amount payable under s 97(1)(c) could not exceed the amount in fact charged to the body corporate, because of the requirement that the costs be “incurred”.
In this review, Judge McGill determined that not all recovery costs which the body corporate submitted, by way of assessed costs, were reasonable.
In the earlier decision of 3 Parkland Boulevard  QBCCMCmr 437, the Adjudicator stated that:
“The body corporate needs to claim those costs as a debt and await either agreement by the defendant or a court order specifying which recovery costs are “reasonably incurred”. If the applicant and the body corporate cannot agree on what recovery costs have been reasonably incurred then the body corporate can initiate court action seeking its reasonable recovery costs.”
Also, in Body Corporate for Liberty v Alotier Pty Ltd & Stewart Silver King and Burns CCT KA009-08 (11 February 2009), the Commissioner found that a body corporate was entitled to treat recovery costs as debt when those costs were determined as either “reasonable” per agreement between the parties, or when determined by order of the Court.
The decision of 399 Woolcock does not supersede or reverse the findings of any of these cases, and in fact is consistent with these findings.
We appreciate that some practitioners in the industry (who were not involved in 399 Woolcock) opine that recovery costs, as a “debt” are “liquidated” in nature. Importantly, however, the Regulations only provide for the recovery of costs which are “reasonably incurred.” The question of “reasonableness” is, and remains, an objective standard of review – and not one that can be unilaterally determined by a body corporate in isolation. Certainly, bodies corporate and debtors are at liberty to determine between themselves what costs are “reasonable,” and are encouraged to do so as the quantum of recovery costs can quite quickly exceed the value of the outstanding levies and interest for which the recovery costs are incurred.
We strongly warn Managers and Committees to consider the possible claims which could be waged against the body corporate for “getting it wrong.” If a body corporate treats all recovery costs as “liquidated” and apply the costs to the OSA (in lieu of a separate unliquidated ledger), and those costs are carried forward on a running total showing a combined debt (arising out of levies, interest and costs), there stands a real and certain risk that the body corporate could interfere with the legal rights of an owner if the body corporate is found to have incurred costs “unreasonably”.
Consider the following two examples as to why Judge McGill espouses the correct interpretation of recovery costs:
Example A: ABC Mercantile Agency/XYZ Law Firm –
Presume Joe Bloggs owns a Unit and he owes $5,000 in outstanding arrears, with continuing interest at 2.5% per month. The Body Corporate Manager (affiliated with DEF Body Corporate Management Company (“DEF”)) recommends to the Body Corporate that they use ABC Mercantile Agency (“ABC”), who carries out legal work under an agency arrangement with XYZ Law Firm who “oversee” the legal work. The costs of recovering the $5,000 debt exceed $8,000, because the “negotiations” in relation to legal fees and charges are conducted by employees of the sister companies in the same head corporate group without influence of outside competition. Joe Bloggs, on advice from his lawyer who reviews the charges, pays $5,000 to the Body Corporate for outstanding arrears and interest, and $5,000 in costs he deems “reasonable” as a debt. He then challenges the Body Corporate to prove the “reasonableness” of the balance. The Court finds in favour of Joe Bloggs, and finds that $3,000 in claimed recovery costs were “unreasonable” (as the Court agrees with Joe that the prices charged by the mercantile agency and law firm were above market and not reasonable in the circumstances, thereby finding of the $8,000 incurred by the Body Corporate – only $5,000 was in fact reasonably incurred). As a result of the loss of vote because whilst the Body Corporate deemed him “non-financial” as the Body Corporate treated the outstanding “$4,000” as a debt due and payable, he has been prevented from participating in the voting and administration of the Body Corporate. End result: Joe Bloggs has a cause of action against the Body Corporate for interference with his legal rights as an owner, and the Body Corporate is out $3,000 in costs (plus whatever further costs are incurred in trying to prove the outstanding recovery costs).
Example B: 123 Law Firm
Presume the above example of Joe Bloggs, but instead of incurring $8,000, 123 Law Firm takes the same steps, but the fees for that same process cost only $4,000. Is it reasonable for 123 Law Firm to mark up their fees to $5,000 (which was allowed by the Court as being reasonable in Example A), just because ABC and XYZ do? Who has standing to decide the question?
In sum, our advices despite 399 Woolcock are as follows:
1. Separately record debt recovery costs incurred against a debtor (most preferably in a “Debt Recovery Ledger”). If the costs are agreed as “reasonable,” then apply the debtors payments to the Ledger directly. Do not intermingle the Ledgers, to ensure transparency is maintained at all times;
2. Whilst debt recovery costs can be plead as “liquidated” without particularisation in the Claim, the body corporate must bear in mind at all times that the burden of proving those costs as being “reasonably incurred” remain with the body corporate. Chances are, if charges are at industry standard and strategic rationale can be demonstrated for the costs and charges, all recovery costs will be recovered as a debt;
3. If a debtor pays an amount of recovery costs the debtor argues is “reasonable” and disputes the balance, the body corporate needs to consider whether to treat the debtor as “financial” if the levies and interest are paid in full, excepting for the disputed amount of “recovery costs.” The body corporate can proceed against the debtor, the further costs incurred in proving the initial costs as “reasonable” are also recoverable on a finding of the Court; and
4. Update by-laws to address the manner in which costs and expenses are treated by the body corporate.
If your Body Corporate has questions about levy recoveries, we welcome you to contact our offices on (07) 5574 3560 or email firstname.lastname@example.org. We thank you for considering Nautilus Law Group.
Submitted by: Katrina E. Brown BA JD ATIA TEP SSA