Is interest payable on overdue levies?

Interest on Body Corporate Levies

The recent decision of Richard Bruxner, president of the Northern Territory Civil and Administrative Tribunal (“NTCAT”) in MacNaughton v The Proprietors – Unit Plan 91/181 has put a spotlight on whether a Body Corporate can charge a unit holder interest on overdue contributions and levies.^[1]

The Unit Titles Schemes (Management Module) Regulations (“the Regulations”) provide clarity for Schemes which operate under Unit Title Schemes Act (“the Schemes Act”), allowing interest to be charged.^[2]

However for Plans operating under the Unit Titles Act (“the Act”), it is not as clear-cut.

President Bruxner considered the claim by the applicable Body Corporate for interest on overdue contributions and levies. This portion of their claim amounted to $3,689.75 and was denied to the Applicant in the original proceedings.^[3]

The Body Corporate had passed resolutions purporting to impose such interest at a rate of 15% per annum.  It appears the interest claim was later reduced to 10% per annum, although the reasons are unclear.

NTCAT Member Stewart, in his decision in the original jurisdiction of the tribunal determined that there was no basis for recovery of interest on the basis the Body Corporate did not show that it “incurred” the expenditure and it bore no relationship to any interest rate paid by the Body Corporate on its borrowings.^[4]

President Bruxner did, however, contemplate that interest may be recoverable by a Unit Titles Act Corporation in certain circumstances.^[5]

CHARGING INTEREST ON UNPAID LEVIES

Conversion of Plan

Section 111 of The Schemes Act allows a units plan to convert to a scheme.^[6]  Completing such a process would thereby allow interest to be charged on late payments under the Regulations.

Alteration of Articles

Although President Bruxner determined that the resolutions of the Body Corporate purporting to impose interest charges on unpaid contributions and levies were not supportable by reference to other provisions of the Act, a Body Corporate does have the power to amend its Articles (provided it complies with s78 of the Act) which amendment has effect only upon registration by the Registrar-General.

Presumably, if, upon passing a special resolution to charge interest on unpaid levies, the Body Corporate proceeded to register the alteration, then provided the criteria in s78 are met, the interest would be chargeable.

INTEREST GENUINELY INCURRED

If a Body Corporate incurred an expense or expended money in performing its obligations as a result of a unit holder’s failure to pay their contributions or levies, such expense may be recoverable^[7], but the Body Corporate must show that the amount being claimed is directly related to the expense incurred.

INTEREST RATE

The interest rate in any case should not be so high so as to amount to a penalty.  When considering penalty interest in the matter of Paciocco v ANZ Banking Group Ltd^[8], the High Court considered relevant whether the specified sum is extravagant, out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow the breach.

THE POSITION IN THE OTHER STATES AND TERRITORIES

In Queensland, a Body Corporate has the power to charge 2.5% interest per month (30% per annum) on levies which are overdue, by way of ordinary resolution.^[9] The interest allows Body Corporates to penalise an owner and gain compensation for costs associated with a default by an owner to service his/her/its obligations.

In NSW, if a contribution is not paid within one month, the unpaid levy attracts interest at a rate of 10% simple interest a year.^[10] The Body Corporate cannot increase or decrease the interest, but it can make a special resolution to charge no interest. Unpaid levies, including interest, can be recovered by the Body Corporate as a debt in court.

In Victoria, the penalty interest rate applies to debts arising from a civil judgement debt or court order. The interest rate is currently 10% per annum but it is important to check this figure as it is regularly amended by the Victorian Attorney General.^[11]

In ACT, unpaid levies attract an interest of 10% per annum.^[12] The Body Corporate can decrease the interest or increase it up until 20% by way of special resolution.

In Tasmania, interest accrues on overdue Body Corporate contributions at a rate fixed by resolution of the Body Corporate. The rate of interest must be fixed on a fair and reasonable basis.

In South Australia, contributions which are late may incur interest of up to 15% per annum.^[13] This interest may be imposed by the Body Corporate following an ordinary resolution.^[14]

Lastly, in Western Australia, a Body Corporate can impose and interest charge of 15% for contributions not made.^[15]

Disclaimer

The advice provided in this article is of a general nature only and should not be substituted for obtaining your own independent legal advice.  Charging of interest on unpaid levies in reliance on a resolution passed by the Body Corporate has long been the practice of many Body Corporates, but clearly the authority to do so is a complex issue.  If you are a Body Corporate Committee member or Strata Manager and require assistance to determine when it is appropriate for interest to be charged, please contact Ward Keller on (08) 8946 2999 or wardkeller@wardkeller.com.au for further advice. 

[1] MacNaughton v The Proprietors – Unit Plan 91/18 [2018] NTCAT 372

[2] Unit Titles Schemes (Management Module) Regulations 2009 (NT) s52

[3] Ibid para 62-69

[4] Section 46 of The Act addresses the Recovery of Expenditure arising from fault

[5] See above [1] para 69

[6] Unit Title Schemes Act 2017 (NT) s11

[7] Unit Titles Act 2017 (NT) s46

[8] Paciocco v ANZ Banking Group Ltd (2016) HCA 28

[9] Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld) s144

[10] Strata Schemes Management Act 2015 No 50 (NSW) s 85

[11] Penalty Interest Rate Act 1983 (Vic) s2

[12] Unit Titles (Management) Act 2011 (ACT) s94

[13] Strata Titles Regulations 2003(SA) reg 8A

[14] Strata Titles Act 1988 (SA) s27(4)(b)

[15] Strata Titles General Regulations 1996 (WA) s26