In this article, you’ll learn how to collect unpaid strata debt in the small claims division of the local court.
Let’s get started.
What are strata levies?
Usually payable quarterly, strata levies, or otherwise known as owners corporation fees or strata fees, are contributions payable by owners in a strata scheme to cover the running costs of a strata building.
The Administrative Fund covers the day-to-day expenses of running the strata scheme, and includes expenses such as maintenance of common property, electricity and water.
The Capital Works fund covers payments toward capital expenses when the need for them arises, such as painting or repairing the common property.
What happens if you don’t pay your strata fees?
Issues arise when one or more owners who own a lot in a strata scheme do not pay or refuse to pay the requisite contributions. In these circumstances, it is often necessary to engage a debt recovery lawyer that specialises in the recovery of unpaid strata fees.
Step by step guide on how to collect unpaid strata debt.
This is how an experienced debt collection lawyer will usually recover unpaid strata levies.
Letter of Demand
The first step is to send the lot owner a Letter of Demand. Among other things, this letter will detail the property title, the total amount of outstanding strata fees, and a statement that levy arrears must be paid by a specified date, or else the owners corporation will proceed with the initiation of legal proceedings.
Usually, this is enough to elicit a response from the owner, at which point they will either pay the total amount outstanding or enter into a payment plan for the outstanding strata levies.
Statement of Claim
This is an originating process filed with the Court. This document will be filed if the demands detailed in the Letter of Demand are not met.
The Statement of Claim will detail the parties involved, i.e. the Plaintiff and the Defendant, the total amount of unpaid levies, any applicable interest, legal fees and filing fees.
The sum total of these amounts will be the amount the Owners corporation will seek to recover from the lot owner.
28 days from the date of service of the Statement of Claim, the owners corporation or Plaintiff may file a notice of motion with the Court to obtain Default Judgment.
This is simply an order from the Court that the Defendant must pay to the Plaintiff the total amount detailed in the Statement of Claim, in addition to further accrued interest.
In order to enforce the judgment debt, in the Small Claims division of the Local Court there are two primary methods used to enforce payment of the debt. These are commonly known as a Garnishee Order and a Writ for Levy of Property.
A Garnishee Order is used when the Plaintiff has knowledge of either
- The lot owner’s employer and/or
- Banking details of the lot owner and/or
- Details of any other debt owing to the lot owner.
Once ordered by the Court, the Garnishee, for example the lot owner’s bank or their employer, must pay to the owners corporation, any debts owed to the lot owner, for example, wages / salary or funds within the lot owner’s bank account.
If the entity named as the Garnishee does not comply with this order, the Garnishee themselves may become liable for the debt.
A Writ for levy of Property
Once ordered by the Court, the NSW Sheriff’s office will attend the residential address of the lot owner and inform the owner that their property is the subject of a writ.
The Sheriff will give the owner four weeks to pay the judgment debt before the Sherriff’s office will collect personal items to be sold at public auction.
Judgment Creditor’s Notice
If the Sherriff’s Office is unable to collect personal property, or the property sold at auction is not enough to cover the judgment debt, and the judgment debt exceeds $10,000.00, then the owners corporation can apply to the Court for the sale of the owners land.
To achieve this;
1. Firstly, the writ must be registered in the Register kept under the Real Property Act 1900 (NSW), or in the General Register of Deeds kept under the Conveyancing Act 1919 (NSW).
2. Secondly, a Judgment Creditor’s Notice must be filed with an affidavit in support. The affidavit must annexe the Notice of Non-Levy received from the Sherriff’s Office, stating that the sheriff was unable to satisfy the judgment debt by executing the Writ for Levy of Property.
3. Third, a sealed copy of the Judgment Creditor’s Notice must be served on the owner.
4. Fourth, a Notice of Sale form must be completed. Six copies must be filed with the Land Registry Service.
5. Lastly, all copies of the notices of sale are then provided to the Sheriff’s Office.
If the judgment debt payable by the owner exceeds $5,000.00, and is no more than six years old, then the owners corporation may make an application to make the owner bankrupt.
This is done by filing an application through the Australian Financial Security Authority (AFSA).
Once the bankruptcy notice is served on the judgment debtor, and there is no response within twenty-one (21) days of serving the Bankruptcy Notice a creditor’s petition is then filed with the Court.
If the creditor’s petition is accepted by the Court, they will grant a sequestration order. This will make the owner bankrupt. A trustee will then be appointed to administer the assets of the bankrupt.
At the time of writing, temporary legislation has been introduced, implemented in relation to the COVID-19 pandemic, increasing the requisite judgment debt amount from $5,000.00 to $20,000.00.
The time period for compliance with a bankruptcy notice has also been temporarily increased from twenty-one (21) days to six months. These temporary laws are expected to cease operation on or about 30 September 2020.
How much does strata levy debt collection cost?
In accordance with the standard costs agreement with Australia Debt Recovery, the costs of filing and legal costs associated with the debt recovery process in the Small Claims division of the Local Court are recoverable against the lot owner who is the subject of the legal proceedings, ensuring that the owners corporation is not ‘out of pocket’ because it became necessary to pursue the owner through the Court in order to recover the balance of the outstanding strata fees.
Importantly, any of the above procedures should be handled by a qualified debt collection lawyer who is able to provide you with the requisite and necessary legal advice.
For more information, please feel free to contact us using any of the following;
Telephone: 0416 562 966