What Happens If an Owner Doesn’t Pay Their Levies?

A Detailed Guide for NSW Self-Managed Strata Schemes

Levies are the financial backbone of every strata scheme. Without contributions coming in on time, the Owners Corporation cannot pay insurance premiums, maintenance invoices, compliance contractors, utilities, or long-term capital works.

But what exactly happens when an owner stops paying? What are the legal steps? How quickly should a committee act? And what are the risks of letting arrears accumulate?

This guide breaks down the process clearly and professionally so self-managed schemes can stay compliant and financially secure.

1. The Legal Obligation to Pay Strata Levies

Under the Strata Schemes Management Act 2015 (NSW), every lot owner must pay levies set at a general meeting. These include:

• Administrative Fund levies (day-to-day running costs)
• Capital Works Fund levies (major repairs and long-term planning)
• Special levies (for unexpected costs or shortfalls)

Once levies are approved by the Owners Corporation, they are binding on all lot owners—regardless of whether the owner attended the meeting or agreed with the budget.

Failure to pay levies is a breach of the Act and exposes the lot owner to recovery action.

2. When Are Levies Considered Overdue?

Levies become overdue the day after the due date listed on the levy notice or contribution notice.

There is no statutory grace period in NSW.

If levies are due on 1 March and unpaid by 2 March, the owner is in arrears.

3. Interest Automatically Begins to Accrue

If a levy is unpaid when due, the Act requires that the owner pays:

• 10% simple interest per annum, charged daily

This is not optional—unless the Owners Corporation passes a resolution waiving or reducing interest for a particular owner (which is rare and should be used carefully to avoid claims of favouritism).

Interest is designed to:

• incentivise payment
• compensate the scheme for cashflow disruption
• avoid burdening compliant owners

4. First Step: Friendly Reminder (Optional But Recommended)

Self-managed committees often start with:

• a friendly email reminder, or
• a courtesy overdue notice after 14 days

Why this works:

• Some owners simply forget.
• Early communication prevents disputes.
• It shows the committee acted promptly and reasonably.

However, reminders are not legally required—the debt already exists.

5. Second Step: Formal Overdue Notice (Typically 30 Days Overdue)

If the levy remains unpaid, the committee should issue a formal overdue notice including:

• amount outstanding
• interest accrued
• reminder of the legal obligation
• payment instructions
• date by which payment is required
• warning of debt-collection action

Many schemes delay this step, which increases arrears and cashflow pressure.

6. Third Step: Letter of Demand (Typically 45–60 Days Overdue)

If the owner still hasn’t paid, the scheme should escalate to a Letter of Demand.

A proper Letter of Demand will include:

• total balance (levies + interest + costs)
• evidence the levy was approved at a general meeting
• copy of the levy notice
• clear payment deadline
• notice that the matter will proceed to debt recovery if unpaid

A Letter of Demand is the final opportunity before involving external parties.

7. Fourth Step: Engage a Debt Recovery Agency or Strata Lawyer

If arrears continue, the Owners Corporation may appoint:

• a debt-collection agency, or
• a strata lawyer specialising in levy recovery

This is fully legal and extremely common.

Key point:

Reasonable recovery costs can be claimed back from the owner under the Act.

This means other owners do not subsidise the debt recovery process.

8. Fifth Step: NCAT or Local Court Proceedings

If the owner still refuses to pay, the Owners Corporation can take legal action.

Two pathways exist:

Option A: NSW Civil and Administrative Tribunal (NCAT)

• Faster and typically cheaper.
• Appropriate for uncontested debts.
• NCAT can order the owner to pay the outstanding levies + interest + costs.

Option B: Local Court

• Used for more complex or higher-value matters.
• Can result in a judgment debt registered against the owner.
• May lead to garnishee orders, bank account seizures, or property writs.

Both routes are fully enforceable and legally binding.

9. What If the Owner Is Selling?

Levies must be paid at settlement.

If an owner attempts to sell while in arrears:

• the Section 184 Certificate will disclose the debt
• the purchaser’s solicitor will require payment at settlement
• arrears (plus interest and costs) will be deducted from sale proceeds

This ensures the scheme is ultimately paid.

10. What Are the Risks of Delaying Levy Recovery?

Self-managed committees often wait too long to act. This creates significant risks:

Financial Risks

• cashflow shortages
• inability to pay contractors
• insurance cancellation risks
• suspension of essential maintenance
• pressure on other owners to increase levies

Legal and Compliance Risks

• breach of fiduciary duties
• potential personal liability for committee members
• difficulty recovering large accumulated arrears

Governance Risks

• disputes between owners
• mistrust in the committee
• loss of financial control

Prompt action is not just best practice—it is required.

11. Can a Committee Refuse Maintenance Because an Owner Is in Arrears?

No.

Maintenance obligations apply regardless of an owner’s payment status.

The scheme must continue:

• repairs
• insurance
• compliance works
• emergency works
• common-property maintenance

The debt must be handled separately.

12. How to Prevent Arrears in a Self-Managed Scheme

Good systems prevent 90% of arrears issues.

Practical Measures

• clear levy notices with due dates
• automated reminder emails
• quarterly arrears reporting
• transparent financial communication
• interest applied consistently
• timely escalation (not months later)

Governance Measures

• accurate budgeting
• realistic levy amounts
• ensuring affordability and transparency
• professional documentation

Self-managed schemes face added risk without the structure of a strata manager—so procedure matters.

Final Thoughts

Arrears are common, but they do not have to become a crisis.

With clear procedures, timely escalation, and compliance with the Act, self-managed schemes can remain financially stable and legally protected.

Strata On Demand Can Help

Strata On Demand provides professional support for self-managed schemes across NSW, offering 30+ services designed to simplify your workload, reduce risk, and deliver professional documentation without the cost of a full-service strata manager.

No contracts. No full-service strata manager fees.

Pay only for the services you need, when you need them.

For levy arrears, debt management, and formal notices, the five most relevant services we offer are:

1. Levy Notice & Arrears Summary Drafting

We prepare clear, compliant levy notices and arrears summaries for AGMs, reminders, and formal collection steps — ensuring owners understand exactly what is owed.

2. Debt Recovery Support

We organise the arrears file, prepare formal documentation, liaise with debt collectors or legal representatives, and guide your committee through the correct recovery process.

3. Drafting Notices & Letters

Need a formal reminder, breach notice, or demand letter? We draft professionally worded documents that comply with NSW strata legislation.

4. AGM / EGM Agenda Drafting

If your committee needs to pass motions regarding overdue levies, payment plans, or debt recovery escalation, we prepare fully compliant AGM or EGM agendas.

5. AGM / EGM Meeting Chairing

For schemes needing independent, impartial leadership when discussing arrears, payment plans, or debt disputes, we chair your meeting professionally and fairly.

If your scheme needs help managing levy arrears or formal debt recovery processes, contact Strata On Demand now.