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 585This post appears in Strata News #769.
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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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