Companies raise levies from their shareholders to finance their operations. In order for levies to achieve their purpose, it is necessary for the company to take steps to ensure that the levies are paid by shareholders on time and in full.
What is a Strata Levy?
Typically, a company will raise annual or quarterly levies to establish:
- An administrative fund, which is used to finance the management of the company.
- A sinking fund, which is used to carry out routine building works.
Companies may also seek to raise a special levy for the purposes of financing major one-off expenses, such as significant renovations of the common property or the process of converting the company to a strata title owners corporation.
Strategies for Ensuring the Prompt Payment of Levies
There are a number of constitutional provisions which can assist the company to recover levies efficiently. They include:
- Enable the board to charge interest on unpaid levies.
- Restrict the voting rights of shareholders whose levies have been unpaid for a significant period of time.
- Grant the company a charge over the proceeds of the sale of any share by a shareholder to allow it to recover any unpaid levies which are outstanding at the time of the sale.
- Establish a procedure which leads to the forfeiture of the shares of a shareholder whose levies have been unpaid for a significant period of time.
Companies should also take a proactive approach to communicating with shareholders to ensure that they are regularly reminded of any levies which they have not yet paid.
Interest and Penalties
Many older constitutions specify a fixed interest rate that will be charged on unpaid levies. These interest rates are often exorbitant by contemporary standards. A clause of a constitution which requires the charging of an exorbitant interest rate may be held to be unenforceable on the basis that it is a penalty.
The preferable approach to charging interest is for the constitution to provide that interest rates will be 2 or 3 percentage points above a benchmark floating interest rate, such as a small business lending rate offered by a major bank. This will make it less likely that the interest rates charged under the constitution will be so far above the prevailing market rates that they will be classified as an unenforceable penalty.
Have you had to deal with recovering strata levies? What was the outcome? To get in touch with one of our experienced lawyers about your strata levies, call us on (02) 9199 8597 or email us.
The information contained in this post is current at the date of editing – 11 April 2025.
