Strata living in New South Wales offers a unique community environment with shared amenities like pools, gyms, and BBQ areas. However, the enjoyment of these facilities relies on owners contributing to their upkeep through regular levy payments. But what happens when an owner falls behind on their levies? Can they be denied access to these common facilities?

The Legal Position in NSW

In New South Wales, the Strata Schemes Management Act 2015 (SSMA) governs the rights and responsibilities of lot owners, including the implications of unpaid levies. An owner who has not paid their levies (including any interest and recovery costs) is considered an “unfinancial owner.”

The SSMA does impose some restrictions on unfinancial owners. Specifically, the Act restricts their participation in certain strata matters such as being restricted from voting at general meetings (except on motions requiring a unanimous resolution) and being elected to the strata committee.

However, it’s crucial to understand that the SSMA does not grant an automatic right to an owners corporation to deny an unfinancial owner access to common property facilities.

The Critical Role of By-Laws

The ability to restrict an owner’s access to common property facilities hinges on the existence and validity of specific by-laws within the strata scheme.

• By-laws and Restrictions: If a strata scheme’s registered by-laws explicitly include provisions restricting access to common facilities for lot owners with unpaid levies, then the owners corporation may have grounds to enforce those restrictions.
• Validity of By-laws: Even when such by-laws exist, their enforceability is not guaranteed. Section 150 of the SSMA empowers the NSW Civil and Administrative Tribunal (NCAT) to deem by-laws “harsh, unconscionable, or oppressive,” which can render them invalid.
• Legal advice is essential: Given the complexities of the legislation and the potential for legal challenges, owners corporations should always seek updated legal advice to determine the enforceability of any by-laws that restrict facility access. What might have been considered enforceable in the past may not be today.

Important Considerations for Owners Corporations

Owners corporations need to proceed cautiously and ensure they are acting within the boundaries of the law. Here are some key considerations:

• Check the by-laws: The first step is to verify that the strata scheme has a by-law that specifically addresses the issue of restricting access to common property facilities for unfinancial owners. If no such by-law exists, the owners corporation cannot legally enforce such a restriction.
• Assess the enforceability of the by-law: Even if a relevant by-law is in place, it is essential to assess its enforceability as a by-law that is deemed harsh, unconscionable, or oppressive is unlikely to be upheld.
• Seek updated legal advice: Strata law is subject to change, and legal interpretations can evolve over time. Owners corporations should obtain current legal advice to ensure that their by-laws and enforcement actions comply with the latest legal standards.
• Apply to NCAT if necessary: If an enforceable by-law exists and an owner refuses to comply with it, the owners corporation may need to apply to NCAT for an order to enforce the by-law.

Proactive Measures: Promoting By-Laws and Levy Collections

To minimize disputes and ensure the smooth functioning of the strata scheme, owners corporations should adopt a proactive approach:

• Clear and comprehensive by-laws: Develop and maintain by-laws that are clear, unambiguous, and consistent with the SSMA. Ensure that all owners have easy access to these by-laws.
• Effective levy collection: Implement a robust system for collecting levies, including:
  • Issuing levy notices promptly.
  • Offering a range of payment options.
  • Following up on overdue payments in a timely and consistent manner.
  • Establishing a clear policy for handling levy arrears.
• Dispute resolution: Establish clear and fair procedures for resolving disputes related to levy payments and access to facilities.
• Professional guidance: Seek legal advice as needed to ensure compliance and best practices.

In NSW, the ability of an owners corporation to restrict an unfinancial owner’s access to common property facilities is not automatic. It depends on the specific by-laws of the strata scheme.

ACCESS TO FACILITIES: DO YOU NEED TO UPDATE YOUR BY-LAWS FOR UNFINANCIAL OWNERS?

Adrian Mueller I BCOM LLB FACCAL I Partner

Since 2002 Adrian has specialised almost exclusively in the area of strata law. His knowledge of, and experience in strata law is second to none. He is the youngest person to have been admitted as a Fellow of the ACSL, the peak body for strata lawyers in Australia. Profile I Linked

Contact Us

For all strata law advice including by-laws, building defects and levy collections contact our specialist NSW and Sydney strata lawyers here or call 02 9562 1266, we’re happy to assist.

During times when owners suffer financial difficulty, owners corporation can often find themselves out of pocket with overdue and unpaid strata levies. This can be a huge concern to strata communities, especially if an owner declares bankruptcy and they face the possibility of missing out on payment of any overdue strata levies or recovery costs.

So when can an owner who does not pay strata levies on time be made bankrupt? And what happens once an owner is bankrupted?

Bankruptcy is a legal process that can occur when an individual cannot pay their debts as and when they fall due.  In Australia bankruptcy is governed by the Bankruptcy Act 1966 (Cth) and is regulated by the Australian Financial Security Authority (AFSA).

Once a person becomes bankrupt, control is given up of their finances and assets to a Trustee in exchange for protection from legal action being taken against the person by an entity to which they owe money.

So, what happens when a lot owner is unable to pay their strata levies? Can they be bankrupted?

Bankrupting an Owner

• A bankruptcy notice can be issued in the event that an owner owes strata levies, is sued by the owners corporation, and judgment is entered against the owner for more than $5,000.
• Usually, we will exhaust all avenues for recovery of outstanding strata levies before seeking the strata manager/owners corporation’s instructions to bankrupt the owner.
• However, if the judgment debt is significantly higher than $5,000, the strata manager/owners corporation would normally provide an instruction for us to move to bankrupt the owner immediately after entry of judgment against them.
• Upon receipt of instructions, we perform a bankruptcy search to ensure the owner has not already been declared a bankrupt.
• If the owner is not already bankrupt, we draft and file a bankruptcy notice with the Australian Financial Security Authority – the current filing fee is $470.
• Once filed, we then serve the bankruptcy notice on the owner.
• Then, the owner has 21 days to make payment of the amount claimed in the bankruptcy notice.
• If the amount claimed remains unpaid after 21 days, we seek the strata manager/owners corporation’s instructions to issue a creditor’s petition to commence court proceedings to make the owner bankrupt.
• If the strata manager/owners corporation instructs us to proceed, we commence bankruptcy proceedings in the Federal Circuit Court against the owner.
• If the Court makes an order for the owner to be declared a bankrupt, a Trustee is appointed to the owner’s estate.

What happens once an owner is bankrupted?

• The Trustee obtains information about the owner’s financial circumstances including any assets owned by the owner and any liabilities of the owner.
• After completing his or her investigations, the Trustee will normally move to sell the owner’s assets to pay the liabilities owed by the owner.
• This often involves the Trustee obtaining possession of the owner’s strata lot and selling the lot.
• Once the lot is sold, the owners corporation is normally paid the overdue levies, interest and recovery costs.

For NSW levy collection or strata legal advice contact us here or call 02 9562 1266, we’re happy to assist.