Can An Owners Corporation Add Its Legal Fees For Recovering Unpaid Contributions To The Defaulting Lot Owner’s Ledger?
Although only a local court assessor’s matter, the case of The Owners – Strata Plan No 52098 v Khalil  NSWLC 2 stands for not putting legal costs onto a lot’s ledger until they have been either the subject of a costs order in the Tribunal or a court. Paragraph 50 of the decision is particularly relevant:
“The operation of section 78(1) and 79(1) creates a statutory debt in respect to levies upon the conditions of those provisions occurring. Section 79(2) has a similar effect in respect to interest accruing on those levies. There is no provision within the Strata Scheme Management Act 1996 that gives expenses the characteristic of being a debt immediately due and payable upon being incurred by an owners corporation. While section 80 refers to the right to recover expenses that provision creates a statutory cause of action. A debt recovery expense incurred by an owners corporation does not, of itself, create a debt immediately payable by the lot owner. It is necessary for the owners corporation to seek a judgment to recover those expenses.”
The Khalil decision has since been cited in The Owners – Strata Plan 50946 v Hong  NSWLC 3. Paragraph 8 of the decision states in relation to the practice of recording on the owner account legal costs and expenses:
“This practice is contrary to what is permitted by the Strata Schemes Management Act 2015 (NSW). The Act makes a distinction between levies and interest which are an immediate debt due and owing to the owners corporation, and expenses, which may be recoverable as a debt by the owners corporation in a court of competent jurisdiction. The distinction was explained by this Court in the decision of The Owners –Strata Plan No 52098 v Khalil  NSWLC 2 at paragraphs  to  in the context of section 80 of the Strata Schemes Management Act 1996 (NSW).”
Many Owners Corporations routinely add in the costs of letters of demand and levy recovery onto the lot’s ledger as most lot owners do not challenge this. However Owners Corporation’s should keep in mind that if it is challenged, then under Khalil and Hong, the added charge would not stand up.
This is general information and should not be considered to be legal advice. You should obtain legal advice specific to your individual situation.
Authors: Jasmin H.Singh & Allison Benson