Recalcitrant lot owners who refuse to pay outstanding levies are unfortunately an inevitable part of scheme living, just like dealing with rogue contractors or fights about water ingress. The effect is often that a body corporate will suffer financially and additional levies need to be imposed so that the body corporate can continue to function.
Once debt recovery action is commenced, legal fees can quickly begin to accrue, particularly if the lot owner is self-represented and doesn’t understand Court processes. The various Body Corporate and Community Management Regulations generally provide that a body corporate can recover as a debt against a lot owner, any costs reasonably incurred in recovering outstanding levies – but what does ‘reasonably incurred’ actually mean?
The Courts have considered this issue on a number of occasions. The recent case of Jorgensen v Body Corporate for Cairns Central Plaza Apartments has confirmed that in order for any recovery costs to be recovered as a debt, the body corporate needs to establish that the costs were both reasonably incurred and reasonable in amount.
This sounds simple enough, but mistakes are commonly made in this area which can result in a body corporate being unable to recover a (sometimes significant) portion of the costs it has incurred.
Some of the key principles that have emerged from previous cases include:
- ‘reasonably incurred’ doesn’t simply mean all costs that have been incurred will be reasonable and therefore recoverable;
- it may be necessary for a body corporate to first try to make contact with the lot owner about the outstanding levies before referring the matter to a debt collector or solicitor;
- the costs to have both a debt collector and a solicitor pursuing a lot owner simultaneously are not reasonable or necessary, particularly where there is duplication of work performed and fees charged;
- whether the body corporate has provided a reasonable opportunity for a lot owner to address their arrears before incurring further debt recovery costs is a relevant consideration;
- the mere fact that a body corporate and its solicitors have agreed that costs are to be payable in a particular way, is not something which of itself makes those costs reasonable;
- a self-serving affidavit from the solicitor who conducted the work is unlikely to be sufficient to prove to a Court that the costs were reasonably incurred – evidence from an expert in costs assessment is preferable and will be necessary if the solicitor does not have the necessary qualifications to provide an opinion on the reasonableness of the recovery costs;
- while legal costs are not always proportional to the amounts in dispute, it is relevant to consider whether the costs bear a reasonable relationship to the value and importance of the subject matter in issue.
Bodies corporate need to be aware that not all costs will necessarily be recoverable against a lot owner and should monitor, as best they can, that debt recovery costs are reasonably incurred.
Practical steps that can be taken include: contacting a lot owner before commencing proceedings, considering whether to enter into a payment arrangement with a lot owner rather than continuing any debt recovery action, and keeping track of legal costs incurred and the work being performed by any debt collector or solicitor.
Think Strata. Think Nicholsons.