Debt Recovery Resolutions

In the recent decision of Glasby v The Owners of 84 Clydesdale Street Como Strata Plan 9012 [2021] WASAT 136, the State Administrative Tribunal (SAT) determined that resolutions to on-charge debt recovery expenses to the scheme's lot owners were invalid under the Strata Titles Act 1985 (WA) (ST Act).‍

Background

‍The Strata Scheme passed a number of resolutions at successive Annual General Meetings that sought to empower the Strata Scheme to raise debt recovery expenses as levies against the Applicant, a lot owner in the scheme (Owner). Importantly, the Strata Scheme did not have a debt recovery by-law. The Owner challenged the validity of the resolutions on the basis that:

1. the Strata Scheme's power to pass resolutions to raise funds or levy contributions is limited by the ST Act;
2. the Strata Scheme may only levy contributions in proportion to an owner's unit entitlement, unless a by-law of the Strata Scheme provides otherwise; and
3. in the absence of a debt recovery by-law, the Strata Scheme lacked the power to make the Owner solely responsible for any debt recovery expenses.

Decision

‍Despite the Strata Scheme's position that the power to pass debt recovery expenses was desirable and convenient, the SAT declared that all the resolutions were invalid. Under the ST Act, a strata scheme's power to:

1. make determinations about fund contributions is limited to amounts to meet its obligations in a budgetary sense and does not extend to determining who pays those amounts; and
2. raise amounts for levy contributions according to the owners' proportions of unit entitlements.

Without a by-law that explicitly empowers the Strata Scheme to pass on debt recovery expenses, the SAT held that the Strata Scheme has no power to determine which lot owners are responsible to pay for the cost of recovering debt. Importantly, the Tribunal made it clear that no determination was being made in relation to the validity of debt recovery by-laws.‍

Key Takeaways

‍The key takeaways are as follows:

1. The ST Act does not empower strata schemes to impose debt recovery expenses by ordinary resolution, regardless as to whether the lot owner is responsible for the debt.
2. Without a specific debt recovery by-law, a strata scheme's power to impose contributions on lot owners must be in proportion to the unit entitlements of their respective lots.
3. Strata schemes should seek immediate advice on implementing an effective by-law that empowers it to levy debt recovery expenses on owners.
4. Strata schemes with an existing debt recovery by-law should seek advice on the effectiveness and validity of their by-law to ensure all debt recovery expenses can be appropriately levied on lot owners.

If you require advice on implementing or reviewing a by-law, contact our Jason O'Meara at jason@pragma.law or on (08) 6188 3311.