As Oliver packs up his Melbourne home of 16 years, he wishes the managers of his strata property had checked in with him before things became so bad that he needed to sell. In 2018, Oliver – who asked not to use his real name – lost his job and fell behind on his strata levies, the regular payments made to upkeep common facilities like roofs, stairwells, lifts and gardens. Then the managers took legal action, meaning he had to pay legal fees on top of his strata payment debt.
Now he’s facing forced bankruptcy after the strata managers filed a claim against him.
Oliver is among a growing number of homeowners falling behind on strata fees as they battle the cost-of-living crisis and rising mortgage repayments. But many of these homeowners are finding themselves caught up in legal action – leaving some with a bigger total bill than their original debt.
Unlike a freestanding house, where homeowners can skip maintenance work, there is a statutory obligation for common property in strata homes to be maintained and repaired. This means everyone in the building chipping in via regular levies – and sometimes special levies to cover unplanned repairs.
Managers can take legal action against homeowners who haven’t made their strata payment by a certain period and the cost of the legal action is often added to the person’s debt. Once unpaid strata fees reach $10,000, managers are able to take bankruptcy claims against homeowners.
Figures collated from the federal court by Financial Counselling Australia (FCA) show there have been 126 filings for forced bankruptcies related to strata debt in 2023-24 as of mid-March.
It already exceeds the 116 forced bankruptcies filed for the previous financial year – and in Victoria, where Oliver lives, the figure has already doubled to 31.
About 16% of Australians lived in strata-titled properties as of last year, a number projected to increase as more apartments are built in response to the housing crisis. In NSW, almost 3 million people are expected to live in strata properties by 2040.
Samantha Reece, the CEO of the Australian Apartment Advocacy group, says cost-of-living pressures, rising strata fees due to increasing insurance and maintenance, rising mortgage repayments and growing maintenance costs are behind the issue.
Homeowners can face exorbitant “special levies” – payments to pay for maintenance costs such as replacing the roof – on top of regular strata levies.
“[Rising strata fees are] a real problem for those [who] are on fixed incomes and haven’t budgeted for this, and have chosen [a strata property] as an affordable option,” says Reece.
“It’s really lost its human touch. Rather than knocking on people’s doors or sitting down for a coffee to ask what’s going on, they’re just handed a legal notice.”
Why more people are falling behind
After forced bankruptcy was filed against him, Oliver decided to sell the home where he and his 17-year-old son live. He estimates his total debt may now reach $22,000 with legal costs and interest added on top of the original $10,000 strata debt.
Gary Bugden, a Queensland-based internationally recognised expert in strata law, says this is not uncommon.
He found that in 10 bankruptcy proceedings for levy recovery in Queensland in recent years, the amount of debt recovery costs exceeded the amount of the original strata debt. In six of those cases, the legal costs were close to double the amount of strata debt being recovered.
The laws around strata vary from state to state, but Bugden says in Queensland and New South Wales they are the least compassionate when it comes to debt recovery.
Both states allow body corporates to recover the entire cost of bankruptcy proceedings against a person who has fallen behind in their strata fees.
“In NSW and Queensland you’re getting this buildup of costs much quicker [than] in other jurisdictions where recovery costs are more strictly regulated,” Bugden says. “There’s not a lot of incentive for a body corporate or a law firm that’s geared up to do the recovery work to be conscious of cost.
“There’s no inquiry in a lot of cases just to ask why somebody’s not paying their levies, and I think that’s wrong.”
Legal action as a first resort
The issue extends beyond just forced bankruptcies. Advocates say they’re seeing body corporates and strata managers increasingly taking legal action as a first resort rather than the last where an owner has missed just one payment.
In NSW, a notice of recovery action can be filed in court 21 days after a missed payment, while in Victoria a notice can be filed after 28 days. In other states and territories there is no limit, says the FCA advocacy lead, Lody Stewart.
Stewart says they frequently see NSW strata managers applying debt recovery costs without a court order – a contravention of the law.
“We’re seeing more and more instances where managing agents, rather than just sending a reminder notice to say they’ve missed a payment, flick it to a legal firm,” she says.
Stewart says one man who lives in a strata-titled property came to FCA for support after the owners required a special $1,500 levy to cover maintenance costs. The Sydneysider, who lives on the age pension, had successfully set up a four-instalment payment plan with the managers, but accidentally missed one payment.
“As soon as he became aware he missed it, he made the payment but in that period of time the strata manager had already added an undefined recovery cost to his ledger without any court order or tribunal orders,” she says. “It made his difficulty paying his special levy even worse.”
Negotiating payment plans is also an issue. In one instance, Stewart says, a 25-year-old who lives in NSW attempted to negotiate a payment plan four times with the strata manager after she lost her job due to a medical condition.
The manager refused each time, then initiated legal action in the local court, which ultimately sided with the resident’s request to set up a payment plan.
“Between the time of them refusing the payment plan and her applying to pay by instalments to the court, [the strata managers] had added a significant amount of interest in legal expenses to her ledger, which further deepened her debt cycle,” Stewart says.
She says FCA has long focused its efforts on supporting and educating people in NSW, where the problem is most acute due to the number of strata properties and the lack of protection.
The NSW strata and property services commissioner, John Minns, has flagged reform seeking to reduce bankruptcy risk and improve financial certainty in strata schemes.
“This will include addressing potentially harmful practices in the recovery of levy arrears,” he says. “This is a complex but critical issue which we are committed to ensuring can be balanced for all parties.”
But Stewart says reform is needed across Australia as the problem grows in other parts of the country and more homeowners turn to strata-titled properties.
“This problem is not going away,” she says.
