This article discusses options available to a strata corporation when an owner cannot pay for repairs, such as funding approaches to ensure necessary works can proceed.
Question: We cannot get insurance unless the asbestos roof tiles are replaced. How can we proceed when one owner is unable to contribute financially?
We are a strata corporation of four units. Our insurer has advised that the property will not be covered unless the asbestos roof tiles are replaced. All owners agree the work must be done, but one owner is non-financial and may not be able to pay their share. What options are available to ensure the roof replacement proceeds and the building remains insured?
Answer: The right funding approach depends on your community’s willingness to collaborate and evaluate both short-term solutions and long-term financial impacts.
While you have a specific difficulty and unique circumstances, this is the same funding situation that is faced by all strata corporations.
I’m assuming that the sinking fund does not have sufficient funds. You have a number of options:
- You said that the person who cannot pay is already in arrears. One option that might work for your particular group is to raise a special levy in excess of the required amount. Three owners would pay, one would not. This option has several consequences for you to evaluate. Are the three owners willing to do this? When will the fourth owner be able to pay? Are you willing to live with this situation for the time being? A strong argument against this is that the fourth owner will not be able to vote, which is usually why we don’t suggest this option. However, in your case, that owner is already unable to vote, so perhaps this is an exception to the rule.
- Alternatively, you could have a strata loan. There are several lenders that you (or your strata manager) can approach. Benefits include:
- Immediate access to funds
- Smooths cash flow impost by up to 90% in the first year when compared with a special levy
- Flexibility to combine borrowing with other funding sources (e.g. partial use of maintenance funds)
- Potential tax advantages for investors and the strata corporation – obtaining tax advice is essential
It’s important to note that a single owner can not be solely liable for the loan repayments. Under section 27(3)(a) of the Strata Titles Act 1988, loan repayments must be proportional to each unit’s entitlement.
Ultimately, the right funding approach depends on your community’s willingness to collaborate and evaluate both short-term solutions and long-term financial impacts.
Lannock Strata Finance
E: strata@lannock.com.au
P: 1300 851 585
This post appears in Strata News #769.
Have a question or something to add to the article? Leave a comment below.
Read next:
- SA: Q&A How do we raise a special levy?
- NAT: Levy arrears in strata: fairness, reform and respectful recovery
- SA: Q&A Strata Fee Increases and Unit Entitlements
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In my purely personal opinion as an unlicenced person living in a small Strata Complex , may I suggest that there are a number of ways to successfully & economically resolve this dilemma that should all be investigated before you go down your chosen path,
1.) Asbestos enclosed in a roof tile I believe may not be considered a high risk or any risk item, asbestos dust & loose asbestos fibre is the high risk item, If all asbestos tiled roofs in Australia had to be replaced there wouldn’t be enough new tiles to go around, so contact 5 0r 6 other Insurance companies to see if any of them can accommodate you, Engage a broker if you prefer, to do a ring around, draw up a long term plan with a time line to replace the asbestos roof tiles that’s fully costed & affordable & Email it with your request for a quote to the new companies you contact or the broker, If all that gets you nowhere, contact the Insurance Council to see if it’s reasonable for Insurance companies to refuse to cover you due to possible non high risk asbestos roof tiles.
2.) As you stated that there are only 4 Lots in the complex, the actual building roof size can’t be that great, so why not have the asbestos tiles removed by a certified asbestos removalist but then have a low cost Colourbond aluminium roof installed, they are being installed everywhere, they don’t leak, virtually no maintenance & probably increase the value & look of your building as well as saving you lots of money when compared to ceramic, etc., roof tiles.
3.) If any of the 4 owners have a current Bank Mortgage, then, as the Asset Value of your building would have sky rocketed in recent years, that increased Asset Value should be easily converted to substantially increased equity in all your Lots & as the Bank would already hold the Title Deeds, then simply apply to your Bank for a Top-Up to the Mortgage funds balance that the Owner already has in place, to cover the expense of a new Colourbond, etc., roof and if you like, add some more to the Top-Up amount to cover any other pressing jobs in your complex & get them done as well & even better, at the same time you could ask for an extension in the total Mortgage repayment period with your Bank which may even reduce your monthly bank mortgage payments, so you may end up with a brand new attractive asbestos free Colourbond, etc., roof over your complex while at the same time paying less for your monthly Bank Mortgage payment. Very important point to remember when making your decision on which way to go, that being if you choose the article sponsors suggestion you will end up with a monthly Mortgage payment to your Bank, that you already have PLUS a Finance Company monthly payment , that’s 2 large payments out of your monthly budget, which could be the straw that breaks the camel’s back, & the article suggests that at least 1 Owner is already nearing that point, whereas with my suggestion of a Bank Mortgage Top-Up & repayment period extension, you will still have only one Monthly payment to the Bank, which may even be less than you’re currently paying…!! Also, in the case of the Lot Owner who’s in arears on their quarterly Levies, if they have a Bank Mortgage & you choose to go down the path of a Bank Mortgage Top-Up then they simply add their Quarterly Levy Arrears amount to their Bank Top-Up amount & bingo – no more Levy Arrears for them & they regain the ability to Vote at all of your General & Committee Meetings…!! Should Owners currently not have a Bank Mortgage on their property, as the Banks are highly regulated with conditions mandating that they treat borrowing customers in a fair & reasonable manner, you could still approach them to see if they can assist in any way, it’s well worth a try…
4.) This point is very critical to consider in your decision making, that being that I have had the experience of perusing an Unsecured “high interest rate” Loan Contract from a Finance Company giving Unsecured Loans to Strata Owners & I allege that the convoluted 20 odd page contract contained what most reasonable people would consider overly oppressive apparent stripping of the rights of the borrower (the Owner), whilst appearing to grant the lender, the Finance Company, the ability to do whatever they like whenever they like, such as changing the Unsecured Loan Interest Rate – without first advising the borrower…!! As I said at the beginning, my comments are my personal matter of opinion and thus are merely being alleged, so in order to put your mind at ease I suggest that you show any such contract to a Contract Law specialist Law Firm with the question being – do they think that the contract is fair & reasonable. They may even advise that certain clauses should be deleted and additional clauses should be added to the Finance Company’s unsecured Loan Contract, this is standard practice, in fact Best Practice in Contract Law & is simply part of the exchange of Contracts procedure in any dealings requiring a Contract to be signed. If anyone should disagree or refuse to take up the Lawyers advice and amend the Contract, then one would immediately come to the conclusion that it should possibly be seen as a major Red Flag & treated accordingly. You may also wish to back up the Lawyers advice by sending owners or past owners of units in Mascot Tower an Email asking them to pass on to you, their experience in a similar venture with a Finance Company. I think Bannister’s may also have posted an item relative to the above situation, online, which would be worth a read.
Once again, the above are merely my own personal opinions alleged in good faith simply to give the 4 Lot owners something to discus at their next Committee Meeting, if some of the above seems a bit severe, simply contact the other party & give them a chance to offer their opinion, then weigh up what is Gaslighting & what is fact…it usually sorts itself out. I am not a licenced professional in any of the above fields, however, I held a senior position in the finance industry nationally a number of years ago but am now retired. So, as always, discuss all of the above alleged & anecdotal points with your chosen licenced professional to get their advice before you make your decision. Your home is most likely the biggest asset you will own in your lifetime and major decisions such as this should not be taken lightly, So I’ll leave you with these words of wisdom that have survived the ages – “Caveat Emptor”… Cheers…
Hi Steve
Thank you for adding to the discussion. You have clearly put a lot of consideration into the challenges small schemes can face when dealing with ageing buildings and funding options.
Your contribution highlights an important point for many small schemes – there is rarely a single “right” pathway, and owners often need to weigh up cost, risk, timing and fairness when deciding how to proceed.