LawStrata and Property

Case Note – Debt Recovery By-Law

By 5 June, 2020 No Comments

In the recent case of Janeba and The Owners of Bulimba Grove Villa Strata Plan 3266 [2020] WASAT 38, the State Administrative Tribunal (SAT) considered the validity of a special levy that had been raised to cover legal expenses and whether the amount that was raised was excessive in the context of section 36(2) and 99 of the Strata Titles Act 1985 (WA) (Strata Act).

The Applicant is a lot owner in a strata scheme comprising of 14 lots, each with a single unit entitlement.

On 14 August 2019, the Respondent raised a special levy in the amount of $28,000 for legal expenses incurred by the Respondent (Special Levy). The Special Levy was raised by contributions of $2,000 per unit entitlement.

The Law

Section 36(2)(a) of the Strata Act relevantly provides that a strata company may “establish a reserve fund for the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature, and other major expenses of the strata company likely to arise in the future”.

Further, section 99 of the Strata Act provides that where the SAT considers that any amount of contributions levied under section 36 of the Strata Act is inadequate or excessive, the SAT may order a variation of the amount.

Party Positions

The Applicant submitted that the Strata Act does not give the Strata Company the power to raise special levies. Rather, the Strata Act refers to two types of levies; namely an administrative levy and a reserve fund levy. Further, the Applicant contended that the Strata Act does not give the Strata Company power to use reserve funds for immediate or past expenditure. The use of these funds is restricted to meeting contingent expenses and other major expenses of the Strata Company that are likely to arise in the future.

In relation to the amount of the Special Levy, the Applicant contended that it was “unreasonable, hugely excessive, unjustified and out of proportion to legal costs”. This was based on the Strata Company’s legal costs being $3,418.52 at the day of the Extraordinary General Meeting.

The Respondent submitted that the Applicant had commenced a number of legal proceedings against the Strata Company in the SAT and one in the Magistrates Court. Based on the Applicant’s litigious history, the Strata Company considered it was good corporate governance that a Special Levy be raised to meet that contingency.

In relation to the amount of the Special Levy, the Strata Company based the amount on how much had already been spent on legal fees and how much would be required in the next 12-18 months.

Decision

Special Levy Validly Levied

In deciding whether the Special Levy had been validly levied, the Member noted that the purpose of accumulating these funds must be to meet contingent expenses, other than those of a routine nature, and other major expenses of the strata company likely to arise in the future. The Member considered the term ‘contingent’ as defined by the Collins Online Dictionary as ‘dependent on events, conditions, etc, not yet known; conditional’.

Based on the above, the Member concluded that future expenses arising from legal proceedings (whether currently on-foot or anticipated) are contingent expenses and would not be considered routine expenses. Accordingly, the SAT found that the Special Levy was raised for the purpose set out in section 36(2)(a) of the Strata Act and, therefore was validly levied.

Special Levy Excessive

The Member accepted the evidence of the Strata Company and found that the Special Levy was not excessive as the amount that had been expended in legal expenses by the Strata Company was tracking towards the predicted figure. Further, the fact that 12 of the 14 lot owners voted in favour of the contributions in itself demonstrated that the majority of lot owners supported the need for a Special Levy at that level.

Based on the above, the application was dismissed.

Summary

Future anticipated expenses of a Strata Company arising from legal proceedings can be “contingent expenses” for the purposes of section 36(2) of the Strata Act. One factor which will assist in determining the reasonableness of such a levy is the amount of votes in favour of the motion to impose the levy.

If you have any questions relating to the decisions raised, or more generally, please do not hesitate to contact our Jason O’Meara on 6188 3311 or at jason@pragma.law.