490. Paid Up Front? The levy credit that might not be legal
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Gerard Doyle of Bugden Allen Lawyers joins me this week to take a closer look at hybrid strata loans: a product designed to let some owners pay their share of major works upfront while others participate in a strata loan.
Gerard shares his concerns about the legal basis for “levy credits”, how those credits are treated in an owners corporation’s accounts, and whether the legislation actually gives an owners corporation the power to structure repayments this way. We also explore the risks for self-funding owners, possible tax implications, and why legislative reform may ultimately be needed to make these products work more cleanly.
Wot if:
Owners in the scheme decided to provide a loan (no OC involvement) using the usual instruments?
Adv to lender owners – loan secured against the property. Interest rate can be set at bank rate minus x %
Was this a live event and why didn’t we get it
Hi Zlata,
Just to clarify, this isn’t a Facebook LIVE session. It’s a pre-recorded podcast episode that was released last Thursday. I hope this clears things up!
Regards,
Richelle
YSP Team
Informative and helpful, thank you. If the OC defaults (repayments), to what extent are self funding owners vulnerable to recovery action by the lender; to what extent can self funding owners protect themselves.
Thanks again
I wish this podcast had been available 12 months ago, before the majority of owners in our 47-lot complex decided not to borrow the $5M required for remedial work from a strata financing company – who we had been with since 2010 – and go with another company. Many owners – some investors who feel they can borrow and claim – wanted to make the up front payment as they weren’t prepared to pay the interest over the 15 years and with the first company they couldn’t pay off anytime during the term. But one thing that SFOs thought was possible was that for each SFO payment, the total amount borrowed would be reduced, making the payments required by those paying quarterly would be lower than if the total ($5M) was being borrowed. However when the second loan company was asked if this was the case the answer was NO, the total amount was still to be levied quarterly.
We have also just changed Strata Management and the new company has not had to deal with hybrid and are rightfully concerned as to how to deal with the financial workings….this podcast outlines some of the Strata Manager’s concerns.
Personally, I was the only one who voted for the first company!
Thank you for the podcast, I thoroughly enjoyed it and I will ensure other members of the committee – I am a member – are made aware of your comments and ceoncerns