The Body Corporate and Community Management Act 1997 has been formally amended to assist Queensland Body Corporates in navigating financial management during the COVID-19 crisis.
The amendments will be applicable from 25 May 2020 to 31 December 2020 and will then expire.
Key areas of the amendments relate to sinking fund budgets, lot owner levies, penalties for late payment of levies, recovery of body corporate debts and the power to borrow any amount on security.
To assist you in navigating these amendments, we have put together a summary and commentary of the key changes for your convenience.
Sinking Fund Budgets
- A Body Corporate can, by ordinary resolution, adjust the sinking fund for the current financial year to remove or reduce any anticipated major expenditure amounts included in the budget.
- If the Body Corporate adjusts the sinking fund in this way, each Lot Owner must be refunded the levy, or proportion of levy, already paid by them that is no longer required for the budget.
- A Lot Owner does not need to make a request, or provide evidence of payment, in order to receive the above refund.
- Anticipated major expenditure amounts are those capital amounts the Body Corporate is required to reserve (under the applicable regulation module) to meet anticipated future major expenditure.
Our comment: These amendments temporarily allow Body Corporates to adopt or amend sinking funds that do not meet the requirements of reserving anticipated major expenditure amounts. The effect of this will mean short term cost savings for Lot Owners by reducing the amount of their levies that are payable this financial year.
Whilst we can appreciate the short-term benefits of these amendments are appealing in the current climate, we encourage Body Corporate’s to consider the longer term impacts this may have on their Scheme before making such a decision; i.e. postponing required major works due to insufficient sinking funds; the imposition of special levies over a shorter period of time to raise money to adhere to maintenance demands; problems with potential Buyers being hesitant to purchase in the Scheme due to insufficient sinking fund balance.
A Body Corporate, if possible, should avoid reducing the sinking fund under this amendment.
Lot Owner Levies
- For Body Corporates who have already fixed the levies payable by Lot Owners for the current financial year, and fixed the date that those levies are to be paid, the Committee may decide to extend the due date for payment of those levies to a date no later than the end of the current financial year.
- The extension of the due date for payment of levies as contemplated above, can either be for:
a. a Lot Owner who has satisfied the Committee they are suffering financial hardship as a result of the Covid-19 emergency; or
b. for all Lot Owners as a whole, regardless of whether they are all suffering financial hardship due to Covid-19.
- A Committee needs to consider the Body Corporate’s ability to continue to meet the necessary spending from the administrative account before deciding the extend the due date for levies.
- The above decision by the Committee can be made at a Committee level and does not require resolution at a general meeting.
Our comment: Under this amendment the Committee are empowered to extend the date for payment of levies by Lot Owners either on a case by case basis or for all Lot Owners as a whole.
A Committee must still act reasonably in considering any extension for payment of levies to ensure the Body Corporate is not put at risk of being unable to meet spending commitments under the administrative fund.
We encourage Committees to only use this amendment for the purpose of granting extensions of time for payment on a case by case basis, rather than to all Lot Owners as a whole.
This will assist in ensuring cash flow for the Body Corporate and can avoid instances where Lot Owners may be trying to take advantage of the postponed payments for their own benefit rather than due to honest financial hardship.
Penalties for Late Payment of Levies
- A Lot Owner cannot incur a penalty for late payment/being in arrears of levies due payable prior to 31 December 2020.
Our comment: this amendment temporarily prevents Body Corporates from being able to charge penalty interest on outstanding Lot Owner levy payments.
The amendment does not extend to cover additional administrative charges of Body Corporate Managers in the payment recovery process.
This is a blanket prohibition on the Body Corporate and is not to be assessed on a case by case basis. This amendment may cause difficulties in calculating the amount of penalty interest that becomes ultimately payable by Lot Owners, and so we remind Body Corporates, and their respective Body Corporate Managers, to be mindful of this to avoid disputes with Lot Owners moving forward.
Recover of Body Corporate Debts
- Until 31 December 2020, a Body Corporate is not obligated to commence proceedings, as may ordinarily be required under a regulation module, to recover any unpaid levies from Lot Owners due owing as debts.
- Notwithstanding the above, this does not prevent the Body Corporate from commencing such proceedings.
Our comment: the effect of this amendment temporarily relaxes a Body Corporate’s requirement to initiate debt recovery proceedings to recover Lot Owner levies. This will ease the burden of Body Corporates commencing such proceedings against Lot Owners who may be experiencing financial hardship due to Covid-19.
It is important to note that this amendment does not waive the Body Corporate’s requirement to commence proceedings, and where a Body Corporate would have been required to commence proceedings between now until 31 December 2020, the Body Corporate will still be required to commence those proceedings and this must take place by 28 February 2020.
Whilst the Body Corporate is not obligated to commence proceedings (as they otherwise may be) under this amendment, the Body Corporate can still choose to commence such proceedings. We encourage Body Corporates to consider this on a case by case basis to ensure the commencing of proceedings against Lot Owners who are not in financial hardship are not unnecessarily postponed.
Power to Borrow
- The Body Corporate is not required to comply with the prescribed borrowing limit when deciding to borrow any amount on security.
- Notwithstanding the above, the Body Corporate cannot make such a decision if it will result in the borrowed amount exceeding:
a. the amount equal to the number of Lots in the Scheme multiplied by $500; or
b. for Schemes regulated under the Small Schemes Module, $6,000.00.
Our comment: this amendment temporarily doubles the maximum amounts that Body Corporates can borrow.
This will relieve financial burden for Body Corporates who are experiencing financial hardship due to the Covid-19 crisis and may also present as an opportunity to take advantage of the increased borrowing limit for other reasons.
Body Corporates need to be cautious not to over commit to any borrowing facility just for the purpose of taking advantage of this amendment whilst it is in effect. This could lead to increased levies needing to be imposed on Lot Owners in the future, which may cause even more financial burden for them.
A Body Corporate still needs to act reasonably in deciding to authorise any borrowing under this amendment to ensure the Body Corporate’s financial stability is maintained moving into the future.
If you have any questions or would simply like some further information, please feel free to contact one of our Body Corporate Law team members:
Clayton Glenister – Managing Partner and Head of the Body Corporate Law Department
Ph: (07) 5539 9688
Brendan Pitman – Body Corporate Associate Lawyer (Debt Recovery and Disputes)
Ph: (07) 5539 9688
Tessa Calver-James – Body Corporate Associate Lawyer (By-Laws, General Advices and Disputes)
Ph: (07) 5539 9688