BCCM REPORT
COVID-19 financial impacts
in community titles schemes With Queensland experiencing a gradual re-opening through the easing of many restrictions, a lot of the state is returning to business as normal, or perhaps a new normal. The effects that COVID-19 border closures, physical distancing requirements, travel restrictions, job losses and consumer uncertainty have had on economic outcomes for many in the community titles sector are ongoing. The Queensland Government has introduced a range of measures designed to support community titles schemes to manage the economic impacts of COVID-19 within their schemes. In the community titles sector, these economic outcomes mean that many owners who are suffering financial distress may be experiencing difficulties paying their usual body corporate levies. Body corporate levies are crucial to the short and longterm viability of community titles schemes. At the annual general meeting each year owners, by ordinary resolution, agree on administrative fund and sinking fund budgets required for the satisfactory operation of their scheme, and the amount and dates of the levies that owners will need to pay during the scheme’s financial year to ensure the scheme can meet the budgeted expenses. Administrative fund budgets cover recurring day-to-day expenditures and insurance premiums for the financial year. Sinking fund levies are based on the scheme’s capital works requirements in the current and future nine years. Late or non-payment of levies can therefore have a significant impact on all aspects of a scheme’s day-to-day operations, as well as the ability to maintain scheme common property to the standards required or sought by owners well into the future. The Government’s Justice and
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The restriction on charging penalties for overdue levies during the COVID emergency period applies to all schemes Michelle Scott
of the COVID-19 emergency, or for all owners generally;
Commissioner, Body Corporate & Community Management
Other Legislation (COVID-19 Emergency Response) Act 2020, which commenced May 25, 2020, provides a toolkit to assist bodies corporate to respond to financial challenges, such as late or non-payment of levies, that are resulting from the COVID-19 emergency. For community titles schemes under the Body Corporate and Community Management Act 1997, the Act includes measures from May 25, 2020 until December 31, 2020 (the COVID emergency period) to: •
prevent bodies corporate from charging a late payment penalty for overdue levies during the COVID emergency period;
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allow bodies corporate to, by ordinary resolution, adopt a sinking fund budget for the current financial year that does not meet the usual requirements to provide for capital expenditure for the next nine years. A body corporate that has already adopted its budget may, by ordinary resolution, adjust it to reduce the amount for capital expenditure for future years, but if it does so, it must refund any overpaid amounts to owners regardless of whether they request a refund;
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permit bodies corporate to delay recovery action for unpaid levies; and
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borrow up to double the usual amounts by ordinary resolution.
budget to cover these costs. •
how extending due dates for levies for some or all owners will impact on the body corporate’s ability to meet its payment obligations to service providers. The committee must consider the body corporate’s ability to meet necessary and reasonable spending from the body corporate’s administrative fund and sinking fund for the current financial year in deciding whether to extend the due date for payment of a levy. Committees are encouraged to ensure they understand the timing and nature of the body corporate’s payment obligations, and the legal consequences if the body corporate is unable to meet these obligations, before extending due dates for levies.
•
how delay will impact on the prospects of success of debt recovery action and the body corporate’s ability to meet payment obligations in the short and longer term. Bodies corporate may wish to consider professional advice on these issues.
It is important to note that the restriction on charging penalties for overdue levies during the COVID emergency period applies to all schemes, whether there has been a prior decision of the body corporate to apply penalties or not. However, whether - and to what extent - a body corporate should utilise the remaining tools or measures in the Act to alleviate the financial burden of body corporate levies on owners, or otherwise manage COVID-19 financial impacts in their scheme, will very much depend on the circumstances and requirements of each scheme. This is because bodies corporate are still required to act reasonably. Important considerations will include the short and longterm needs of all owners in the scheme, for example: •
allow committees to extend the due date for payment of levies for a particular owner if the committee is reasonably satisfied the owner is experiencing financial hardship because INDUSTRY
how adopting a reduced sinking fund budget in the current financial year will affect the sinking fund budget and levies in future years. In most cases a reduction in the sinking fund budget will delay but not remove the need for planned capital works in a scheme and associated levies to be raised. If so, a corresponding increase in sinking fund levies or special levy may be required in the next financial year to “top up” the scheme’s
Bodies corporate may also need to revisit these decisions over the COVID emergency period, as financial impacts continue to emerge and evolve. For further information about the measures in the Act and body corporate and committee obligations during the COVID-19 emergency, please refer to www.qld.gov. au/bodycorporate or contact my Office on 1800 060 119. ResortNews | September 2020
