BODY CORPORATE DEBTS AND PAYMENT PLANS

Bodies Corporate established by the Body Corporate and Community Management Act 1997 have various rules and regulations that govern the payment and recovery of debts. Generally, a “Body Corporate debt” will be an amount owed by a lot owner to the Body Corporate. But is every debt a lot owner owes a “Body Corporate debt”? This article will consider what is and is not a “Body Corporate debt” and explain what happens for lot owners if they don’t pay.

What is a Body Corporate debt?

A “Body Corporate debt” is defined by the legislation as an amount owed by a lot owner to the Body Corporate in respect of:

1. a contribution or instalment;
2. a penalty for not paying a contribution or an instalment by the date for payment; and/or
3. another amount associated with the ownership of a lot.

Therefore, in most cases, Body Corporate debts are unpaid levies and penalty interest applied to unpaid levies. However, what constitutes “another amount associated with the ownership of a lot”?

What is not a Body Corporate debt?

In the decision of Donnelly House [2017] QBCCMCmr 377 (3 August 2017), an Adjudicator found that the applicable test for whether “another amount associated with the ownership of a lot” is a Body Corporate debt requires:

1. a quantified amount owing to the Body Corporate; and
2. the debt arising as a function or incidence of ownership of the lot.

A quantified amount means that the Body Corporate must be able to establish the amount owed and how that amount was calculated.

Whether the debt arises as a function or incidence of ownership of the lot is less clear. However, the following decisions indicate the following would not be a “Body Corporate debt”:

1. a costs order made against a lot owner in favour of the Body Corporate: See 211 Ron Penhaligon Way Offices [2020] QBCCMCmr 526;
2. recovery costs associated with unpaid levies: See Body Corporate for Pinehaven 1 CTS 31755 v MacKenzie [2021] QMC 8; and
3. a debt that arises under an agreement or deed as between the Body Corporate and the lot owner: see The Rocks Resort [2023] QBCCMCmr 159 (17 April 2023).

What happens if you don’t pay a Body Corporate debt?

If a lot owner fails to pay a Body Corporate debt, the regulations state that they will be unable to:

1. vote on any motion decided at general meetings, save for motions that require a resolution without dissent;
2. choose a member of the Committee for the Body Corporate; and
3. be a voting member of the Committee for the Body Corporate.

Debt repayment plans

A common question we get asked is whether a lot owner still owes a Body Corporate debt if they enter into a repayment plan and adhere to that plan. The short answer is yes. Until a Body Corporate debt is repaid in full, the lot owner must be treated as owing a Body Corporate debt. This was confirmed by an Adjudicator in the decision of Merrimac Heights [2012] QBCCMCmr 277.

Final comments

In recent years, we have seen a sharp spike in lot owners failing to pay debts they owe to Bodies Corporate, on time and in full. It is the sad reality of the economy we live in now that many lot owners simply cannot afford to pay their levies, particularly with the massive increase in insurance premiums across the country following several recent natural disasters.

Both lot owners and Bodies Corporate must take all reasonable steps to pay and recover Body Corporate debts because if these debts are not paid, the Body Corporate runs the same risks as a company that cannot pay its debts on time and in full, meaning external administration.

If a Body Corporate is placed into external administration, every lot owner in the Body Corporate is placed at risk. In extreme cases, the Body Corporate could be terminated and sold as a single parcel to repay the Body Corporate’s debts.

HWL Ebsworth has assisted hundreds of Bodies Corporate to recover millions in unpaid Body Corporate debts. In 2022, we recovered about $600,000.00 in unpaid debts for Bodies Corporate in Southeast Queensland alone. We have a designated debt recovery team and online debt recovery portal, so that Committees and Body Corporate managers can track letters of demand, repayment plans, debt repayments and debt recovery proceedings.

If you need any assistance with Body Corporate debts, or have any questions about this article, please contact us.

This article was contributed by Mario Esera – Partner, HWL Ebsworth Lawyers