Recovering the Cost of Chasing Overdue Levies: Court orders bank to pay Body Corporate legal costs
The failure by lot owners to pay Body Corporate levies when due and owing can create a significant financial burden for Bodies Corporate who are often forced to increase budgets and raise special levies from other lot owners to compensate for the shortfall. Fortunately, a decision in the Queensland Court of Appeal has provided certainty for Bodies Corporate that the reasonable legal costs incurred for recovering overdue levies can be included in a Body Corporate debt payable by the owner of the lot, even in situations where the debt has been incurred by a previous lot owner.
The case of Westpac Banking Corporation –v- Body Corporate for the Wave CTS 36237  QCA 73 concerned a situation in which a mortgagee (Westpac) entered into possession of a lot which had been the subject of court proceedings for the recovery of unpaid levies. The Body Corporate had been in a longstanding litigation with the previous lot owners for unpaid contributions in the amount of $12,475.83. At the time that Westpac entered into possession of the lot, the Body Corporate had expended sums in excess of $330,000.00 in costs to recover the debt. The issues in dispute concerned whether the Body Corporate could seek to recover their legal costs directly against the mortgagee in possession notwithstanding the fact that the costs had been incurred at the time that Westpac was not in possession of the lot.
Westpac argued that the recovery costs charged by the Body Corporate was a personal debt due and payable by the previous lot owners. The Court of Appeal rejected that argument and found that recovery costs for overdue levies are associated with the ownership of the relevant lot. Consequently, Westpac was held to be liable for the reasonable recovery costs of the unpaid levies despite the fact that such costs had been incurred by the Body Corporate before Westpac had taken possession. (Please note the Court did not consider whether the amount of legal costs incurred by the Body Corporate in this instance was reasonable).
This decision raises a number of issues surrounding the recovery of overdue Body Corporate levies, that Bodies Corporate and lot owners should be aware of:
- The legal costs incurred by Bodies Corporate in recovering unpaid levies is a ‘Body Corporate debt’ which can be recovered both against the defaulting lot owner plus any subsequent lot owners in possession of the property before the debt is paid (including mortgagees in possession);
- Owners of lots within Body Corporate schemes can be liable for debts incurred by previous lot owners. Therefore, it is crucial that prospective purchasers of lots within Body Corporate schemes do proper due diligence of levy accounts before taking ownership of a lot. Such action can ensure that any outstanding levies are paid by the defaulting lot owner prior to settlement.
At Steindls we understand that recovering overdue and unpaid levies from lot owners can be a frustrating and time-consuming process for Body Corporate Committees. Fortunately, the decision made in Body Corporate for the Wave CTS 36237 allows bodies corporate to appoint solicitors to recover levies with assurances that the reasonable costs can be recovered as a body corporate debt.
We assist many Bodies Corporate on the Gold Coast with recovering unpaid and overdue levies from lot owners, across all aspects of the litigation, including issuing letters of demand through to enforcing the seizure of lots for sale at bailiff auctions. Our experience in this area allows us to minimise our costs and to provide full advice of the processes and steps to be undertaken in the recovery action.
In addition, our conveyancing team can also assist prospective purchasers with undertaking proper due diligence of Body Corporate records to ensure that incoming purchasers are not held responsible for debts incurred by previous lot owners.
If you are a member of a Body Corporate committee looking to recover overdue levies, then please do not hesitate to contact us on the details below.
Tel: 07 5570 9523