Kilmartin Knyvett Lawyers: Body Corporate Recovery Costs – A Reminder About Reasonableness

By July 31, 2019Legal Issues

Image: Boardwalk Residences

As many readers will know, the various body corporate regulation modules each provide that if a contribution is not paid by the date for payment, a body corporate may recover each of the following amounts as a debt:

a) The amount of the contribution;

b) Any penalty for not paying the contribution;

c) Any recovery costs reasonably incurred by the body corporate in recovering the amount.

These provisions have always been of comfort to a body corporate committee, knowing that recovery costs spent on behalf of the body corporate to recover outstanding levies, will in the end, be payable by the lot owner (debtor). There was good reason for feeling this way. Generally, the Courts have applied a broad interpretation of what was considered reasonable in terms of recovery costs. For example, in the case of Westpac Banking Corp v Body Corporate for the Wave Community Title Scheme 36237 [2014] QCA 73, the body corporate was able to claim over $150,000.00 for reasonable recovery costs in recovering a $5,000.00 debt.

However, a recent decision of the District Court has cast doubt on this approach and highlighted the importance of reasonableness when recovering outstanding body corporate levies.

Thompson v Body Corporate for Arila Lodge [2017] QDC 134

This case commenced in the Magistrates Court where the body corporate obtained summary judgment against a lot owner for $49,037.70. The Judgment amount comprised of the following amounts:

  1. $16,049.02 in unpaid body corporate contribution instalments;
  2. $817.49 in interest; and
  3. $32,171.21 in recovery costs pursuant to s.145(1)(c) of the Body Corporate and Community Management (Standard Module) Regulation 2007.

The Appeal

However, the decision of the Magistrate was appealed in relation to section 145 (1) (c) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (QLD). This section provides that:

If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover (any costs) reasonably incurred by the body corporate in recovering the amount.

It was argued by the lot owner that “reasonably incurred” should be limited to costs and disbursements reasonably incurred and reasonable in amount. The lot owner further argued that reasonableness could not be determined purely based on a solicitor swearing to the reasonableness of costs incurred in affidavit material.

The District Court upheld Judgment in the sum of $16,866.69, and the remainder of the claim amount was sent back to the Magistrates Court for a rehearing of the issues in respect of recovery costs. In doing so, the District Court highlighted that bodies corporates need to be very careful about what recovery costs they purport to pass onto a lot owner in arrears.

Why is this decision so important?

This decision is a warning to body corporate committees to act reasonably when recovering outstanding body corporate contributions and not to assume that all recovery costs can be passed onto the owner. It is essential to keep detailed and precise records of all the costs and why these costs have been incurred. For recovery costs to be considered reasonable, they must be necessary and proportionate in all the circumstances. Making offers to settle the outstanding debt can be helpful as well as a willingness by the body corporate to enter into a repayment plan.

That being said, it is important to remember that the law still provides that any costs reasonably incurred can be recovered as a body corporate debt from the lot owner. For this reason, provided the body corporate does act reasonably and that reasonableness can be put into evidence, there is no reason why all recovery cost can’t still be paid by the lot owner in arrears.

Author: Kilmartin Knyvett Lawyers