Best practiceLegislation

November 2023 – Penalties or discounts or both

Both penalties and discounts are permitted to be applied to levies issued by bodies corporates that are regulated by the BCCM Act. However, it is our experience that penalties are best applied on all levies but that discounts are only applied in special circumstances.

The Act permits a maximum levy penalty rate of 2.5% per month and we recommend setting penalties at that maximum rate. The penalty must only be applied to a lot ledger one month after the levy falls due and payable. Since a levy must be issued one month in advance of the due date, there really is no excuse if payment is not made for two months. Our committees rarely get requests from lot owners for a penalty to be waived. If you were a Tracsafe client, you would have received a levy notice by both email and post (if wanted) ensuring two separate ways of communication. It is extremely unlikely that the levy was not received by the lot owner. Additionally, a reminder email is likely to have been sent advising that payment was overdue prior to the penalty being applied. Each month that the levy remains unpaid will incur further penalty. This is a strong mechanism to ensure lot owners pay their levies.

Discounts are best used when the money is neeed urgently; typically this is usually for a special levy for a major project with time constraints and where the body corporate has insufficient funds to proceed until the levy monies are receipted. The Act permits a maximum discount of 20% if the levy is paid in full on or before the due date. If you are just one day (not one month like a penalty) overdue – you do not get the discount. Unlike penalties, if you are overdue – you incur a large financial impact 20% vs 2.5%. Without penalties – once you miss the discount there is no further incentive to pay the levy. Because of these issues, committees come under a lot of pressure to consider discount relief from lot owners who missed the discount. This often causes unhappiness fro lot owners and difficulty for committees in making consistent decisions. Finally, the use of discounts on regular standard levies makes the financial statement and budget statements more complex than they need to be.

In summary, our advice is to always use penalties (at the maximum rate of 2.5% per month) on every levy. Do not use discounts on standard levies and only use discounts on special levies where the monies are needed as soon as possible because the body corporate has insufficient funds.