There are severe consequences for failing to collect levies.
For the most part, the owners corporation will become dysfunctional, which can lead to the compulsory appointment of a strata managing agent, which is very costly for the owners and takes away their ability to make decisions for themselves.
Over time, the owners corporation will run out of funds to pay its suppliers (services such as water, energy, cleaning, repairs etc.), effectively making it insolvent.
Repairs and Maintenance
Eventually, the owners corporation will fail to be able to undertake repairs or maintenance of its common property under its strict duties under section 106 of the Strata Schemes Management Act.
An owners corporation cannot legally commit to works without sufficient funds. In other words, if one knowingly doesn’t have the money to pay for a job, it’s considered to be fraud if they proceed to engage a tradesperson regardless.
Owners might choose not to pay levies now, but that won’t stop the obligations. It won’t prevent the building from deteriorating. Failing to pay those levies now “kicks the can down the road” – the problem doesn’t disappear.
Furthermore, repair and maintenance become more expensive the longer it is left. Take concrete spalling, for example – the longer it is left to fester, the more it grows, and the more damage occurs.
Devaluing your Property
If owners plan to sell, imagine what prospective purchasers will think when they look at the records and see that there are debts on not only their lot but others. Prospective purchasers will see low funds in the capital works fund, compare them against the ten-year capital works fund plan, and see red flags (i.e., special levies in the future).
So, in summary, the owners corporation needs to look to its future and all the ramifications that will inevitably come from its decisions today. This is why owners corporations are required to have capital works funds – to set aside funds for those expected and unexpected major works that will eventually come.
An owners corporation decides on its levies by resolution at its annual general meeting. Once that decision is made, the levies are “struck”, meaning they must be paid. The only way to undo that is to hold a general meeting and pass another resolution, either amending or cancelling future levies.
An owner or a strata committee cannot simply decide to ignore levies. When owners do sell, the owners corporation will be asked to produce a strata information certificate (also known as a section 184 certificate) disclosing any overdue levies. This will also be factored into the settlement process, and most purchasers would demand that the sale price be decreased by the equivalent amount of any outstanding levies (or demand that the vendor pays them before settlement).