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On what basis are levies charged?

The Unit Titles Act 2010 (the “Act”) is prescriptive when it comes to body corporate levies. To understand the basis on which levies are charged it is first helpful to understand the difference between “ownership interests” and “utility interests”.

An “ownership interest” is assigned to each unit in a unit title development by a registered valuer on the basis of the value of the unit relative to each other unit in the development. It is important to keep in mind that “value” does not mean size, and as such it is possible to have two units in the same development that are both 75 square metres in size, but one has a higher (sometimes significantly higher) value and accordingly ownership interest than the other.

In addition to an “ownership interest” it is necessary for each unit to have a “utility interest”. The “utility interest” for each unit will be the same as the “ownership interest” unless the developer (or body corporate at a later date) is of the view that it would be fair and equitable for the units to be allocated utility interests that are different to the ownership interests. This is typically done where one or more units will (or do) use significantly higher proportions of the body corporate utilities than their relative ownership interest allows for.

There are four accounts each body corporate may have:

1. An “operating account” for day to day expenditure (must have this);
2. A ‟long term maintenance fund” (must have this unless the body corporate decides by special resolution not to have such a fund). These funds can only be applied towards spending relating to the long-term maintenance plan;
3. An ‟optional contingency fund/s” to provide for larger scale costs that are unexpected and not budgeted for;
4. An ‟optional capital improvement fund” for capital improvements and upgrades to the property that are not included as part of the long-term maintenance plan.

When it comes to charging levies, s121 of the Act makes it clear that levies for the operating account, long-term maintenance fund, and contingency fund/s must be charged in proportion to each unit owner’s utility interest; and levies for any capital improvement fund must be charged in proportion to each unit owner’s ownership interest.

On what basis are levies recovered?

Levy payments are charged to individual unit owners. A body corporate must state in each levy notice the date by which payment is to be made. If a levy remains unpaid by the due date then the amount of the levy, together with any reasonable costs incurred in collecting the levy, is recoverable as a debt due to the body corporate by the person who was the unit owner at the time the levy became payable, or by the person who is the unit owner at the time any legal proceedings are initiated.

Typically, the Tenancy Tribunal is the appropriate forum to hear any disputes as to levy payments.

Claiming back any overpayment

There are two scenarios where overpayments typically occur:

1. Where money is incurred for repair work that benefited one or more units more so than the other units; or

2. Where unit owners have agreed to pay levies (either generally or for specific works) on the basis of a formula other than ownership and/or utility interests.

The Act assists in terms of scenario 1. Section 126 enables a body corporate to re-assess the costs incurred in relation to any repair work and re-allocate them on the basis of the relative benefit received by each unit owner. This re-assessment can be agreed between the unit owners and the body corporate, although often it will involve an assessment by valuers and the Tenancy Tribunal.

Scenario 2 is more comprehensive and needs to be assessed on a case by case basis. Very often unit owners agree to contribute towards the costs of certain works on a basis other than ownership/utility interests. If this is agreed to by an owner, it will be difficult for that owner to come back to the body corporate at a later date (especially if they have subsequently on-sold their unit) demanding a refund of an overpayment.

It goes without saying that the above is intended for information only, it is not legal advice and is not to be construed as such. If you wish to discuss this article or any other body corporate issue, please contact us.