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1. Effective levy recovery
The StrataSessions webinar
28 October 2010

2. The new threat to strata finances in Australia

3. USA has the opposite problem but the results are the same
View later at http://www.youtube.com/watch?v=NU-VLp3lYDc&feature=email

4. A quick quiz on this story to focus our discussions
1. Why do people like Mr and Mrs Pilot pay their
mortgage before their strata levies?
2. What should the Pilot’s have done when they
decided to pay the mortgage first?
3. What is the downside to the lawyer calling and
demanding a cheque by 5.00 pm to stop
foreclosure?

5. On loosing the debtors war on fee recovery
1. Owners are fighting back against
strata management and legal fees
billed to owners ledger without legal
authority.
2. Courts have backed the owners in
NSW (Dimitriou), QLD (Liberty) and
VIC.
3. Only VIC has legislated for greater
cost recovery effective 1 January
2011.

6. 5 suggestions for more effective levy recovery
Budget for
the
inevitable.
Reward good
behaviour
and punish
bad.
Develop a
collection
policy to hide
behind.
Stop the dance
of the
delinquent
debtor.
Be firm but
fair in
collections.

7. Recommendation 1 - Budget for the inevitable
Provision
Assess
Benchmark
Sell
Outperform
• Provide for out of pocket recovery expenses
• Calculate the schemes delinquency rate
• Compare the delinquency rate against industry
standards
• Convince owners to increase the levy budget
• Deliver collections in excess of budget

8. • Provide for out of pocket recovery expenses
Provision
Out of pocket recovery budget =
No. of owners at 90 days plus
unpaid x $1,000
•
•
•
No. of owners beyond 90 days for last
full quarter levied excluding current
period
$1,000 is the average out of pocket
difference between actual cost of
recovery and court assessed recoverable
costs for typical $3,500 debt
Add this sum to the annual budget for
administration levies under “out of
pocket levy recovery costs”.

9. • Calculate the schemes delinquency rate
Assess
Example
1
Yearly admin and sinking fund budget
$100,000
2
Budget year to date (third quarter)
$75,000
3
Amount of levies outstanding > 90 days +
$15,000
4
Delinquency rate (Line 3 divided by line 2 x 100)
20%

10. • Compare the delinquency rate against industry standards
Benchmark
Assess
90 + days unpaid as a % of
pro rata total annual
budget
Your performance guide
0%
You’re a genius but don’t assume this rate will last for ever –
hard times hit owners
5%
Not bad – this is the average – you are within striking distance
of outperforming the industry
10%
Warning bells – this is too high and you will be facing hard
questions soon if not already about your recovery processes (or
lack thereof)
15% +
You’re in strife – this will involve some heavy lifting to pull back
from here – you have to collect and re educate your owners
immediately

11. • Convince owners to increase the levy budget
Sell
Without funds strata communities skimp on
repairs and maintenance and,
Assess
•
•
•
Property values fall
Maintenance costs increase
when preventative measures
slip
Personal legal liability risk of
owners increases

12. • Deliver collections in excess of budget
Outperform
Only by budgeting for delinquencies and out of pocket
expenses can we hope to deliver balanced or surplus
accounts each year.
Outperforming industry
benchmark and budgets is
a tangible measure of
competence for strata
managers and committees

13. Recommendation 2 – Reward good behaviour and
punish bad
“When changing bad
habits and driving peak
performance, its handy to
have both a carrot and a
stick. In strata levy
collection, the carrot is
the discount and the stick
is interest.”
Michael Teys “The strata guide to levy collection without
being out of pocket 2010”

14. The carrot …

15. The stick …
An OC at an AGM strikes a levy of $4,000 to be paid in four
installments of $1,000 each due on the first day on the following
months of October, January, April and July.
An owner pays the October levy on 7 December.
The interest payable is $91.66 calculated as
$1,000 x 10% x 11/12 = $91.66.
In NSW calculate interest from date due plus one month i.e. the
first month is interest free

16. Recommendation 3 – Develop a collection policy to
hide behind
1.
2.
3.
4.
5.
De-personalises unpleasant
consequences of delinquencies
Educates owners about responsibilities
and consequences
Provides a roadmap to guide executive
committee and strata manager
Answers that the committee is
proceeding in a selective or
discriminatory way
Protects committees and managers
against claims of negligence

18. Recommendation 4 – Stop the dance of the delinquent
debtor
• The owner is late in paying,
• The strata manager issues an arrears
notice (and another, and another),
• The committee resolves to get tough, so
they instruct the strata manager to write a
letter,
• Then the solicitor gets involved, and writes
another letter (same stick – different
dog!),
• Another quarter goes by and a new set of
levies comes around, go back to the
beginning and repeat until everyone is
exhausted and the costs of collection are
more than the levies, then pay, then start
the dance again.

19. When you have had enough of the dance, do this …
1. Be consistent with your
collection policy
2. Be seen to be consistent with
your collection policy
3. Do exactly what the policy
says when the policy says
4. Don’t do things that are not in
the policy
5. Once solicitors are involved,
let them do the (barking)

20. Recommendation 5 – Be firm but fair in collections
5.1 Operate within ASIC debt collection guideline
–
–
Privacy laws apply to debt
collectors and solicitors
Statements that additional fees
or charges will be added where
there is no contractual right to
add these will constitute
misleading and deceptive
conduct under fair trading and
trade practices laws

21. Recommendation 5 – Be firm but fair in collections
5.2 Move to judgement swiftly to recover costs
–
–
Court assessed costs are now the
only costs recoverable
These costs plus court awarded
interest bridge the gap between
actual costs and recoverable
costs

22. Recommendation 5 – Be firm but fair in collections
5.3 Enforce judgements by forcing sale of apartments
–
–
–
For judgements over $5,000 including
court assessed costs bankruptcy
proceedings are most effective
For judgements under $5,000 warrants
of execution against property are more
difficult but get the same result
Other forms of enforcement are
useless

23. Today’s 5 suggestions for more effective levy recovery
1. Budget for the inevitable.
2. Reward good behaviour and
punish bad.
3. Develop a collection policy
to hide behind.
4. Stop the dance of the
delinquent debtor.
5. Be firm but fair in
collections.

24. Learn more with Teys Lawyers
• www.teyslawyers/facebook for daily
updates on advice given
• Enroll for next StrataSession webinar on
building defect rectification
• Read our next StrataGuide – “The strata
guide to levy collection without being
out of pocket” due out 1 November
2010.

25. Teys Lawyers Pty Ltd
Suite 73
Lower Deck
Jones Bay Wharf
19-32 Pirrama Road
Pyrmont NSW 2009
p: (02) 9562 6500
f: (02) 9562 6555
w: www.teyslawyers.com.au
e: service@teyslawyers.com.au