Levy Arrears Recovery Time Limitations (QLD)

A Judge of the District Court of Queensland has just ruled that a body corporate must start legal proceedings to recover a contribution that has been outstanding for two years and two months; otherwise the body corporate will be barred from taking action outside that period.

This decision will have drastic ramifications across the industry, and we urge the levy recovery departments of all body corporate managers to review the records of any historical arrears to identify cases in which urgent recovery action needs to be taken.

What happened?

BC for Mount Saint John Industrial Park CTS v Superior Stairs & Joinery Pty Ltd [2017] QDC 245 involved a body corporate that raised a special contribution on its members in 2009, primarily to fund rectification works to a road on the common property a neighbouring property also has a right-of-way over.  A lot owner disputed that special contribution from the outset and insisted that they would not be paying it.  The body corporate commenced recovery proceedings on 8 May 2013 – about three and a half years after the special contribution first fell due.

The lot owner defended that part of the recovery claim on the basis that it was made out of a two year time limit established by section 145(2) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld), which states:

“If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2-year period, start proceedings to recover the amount.”

The convention in the industry has been to treat this provision as compelling the body corporate to take recovery action to ensure the continued financial viability of the scheme, but not precluding recovery action being taken outside that period.  In practice:

• Lot owners could compel a committee to take recovery action as that two year period approached.
• A body corporate manager could refer to the two year period as justification to a committee on why a tough decision has to be made against an owner that may be experiencing hardship.
• A claim to recover outstanding contributions was not considered to be barred until six years had passed pursuant to the Limitation of Actions Act 1974 (Qld).

A District Court judge has instead found:

• The general time limit in the Limitation of Actions Act does not apply in the face of the specific two year two month period set out in the BCCM regulation module.
• There would be no point to the two year two month period set out in the BCCM regulation module unless it was taken to be a time limit on when the action must be taken.

Where to from here?

This decision is a break from how the industry has understood the operation of the BCCM regulation module.  Body corporate managers will need to carefully look at their records to identify any arrears that have been outstanding for close to, or more than, 2 years and 2 months.

If you identify a debt that falls outside that period: do not panic.  There may be ways to re-enliven the liability to pay the contribution.

If you identify a debt that has been more than 18 months overdue, then urgent action needs to be taken.  Issuing a letter of demand or negotiating a payment plan will not be enough.  Unless this decision is overturned on appeal, the body corporate is now required to make a claim in a court or tribunal to recover the contribution before two years and two months pass, otherwise the body corporate will have lost the right to recover the contribution and other owners may have to make up the short fall.

To manage the risks that flow from this new decision, body corporate managers should:

• Regularly remind committees of the state of the scheme’s outstanding contributions, and that recovery proceedings must be started within two years and two months.
• Recommend that each body corporate under management passes a resolution to adopt a debt management policy to establish timeframes in which the body corporate manager may issue reminder notices, letters of demand and refer arrears to a lawyer to start recovery proceedings.
• Carefully consider (and even revisit) any payment plan that that would draw out a contribution for more than, say, 12 months.

This article was contributed by Jason Carlson – Partner, Grace Lawyers.