Unpaid common fees are a problem almost every condominium and housing estate juristic person faces, and the problem is not the amount owed by any one unit but that it spreads. When co-owners see that nothing happens to those who do not pay, those who pay on time begin to ask why they should. Meanwhile the project's expenses, including security, cleaning, repairs and maintenance, and electricity for common areas, still have to be paid every month as before.
This guide is written for juristic person managers and committees. It covers the tools the law provides, what you should not do even though it may work quickly, and how to turn arrears into money.
This content is general information. The details depend on each project's regulations and the facts of each unit. Consult a lawyer before using any measure.
Condominiums and housing estates are governed by different laws
A condominium juristic person is governed by the law on condominiums. Unit owners must share the common expenses in the proportion the regulations set. A co-owner in arrears must pay the additional charges set by law and the regulations, and once arrears reach six months or more, the regulations may provide for suspending shared services or use of the common property. The owner also has no right to vote at the general meeting.
A housing estate juristic person is governed by the law on land allotment. Buyers of allotted land must pay fees for the maintenance and management of the utilities. When arrears reach the period the law specifies, services or use of the utilities may be suspended, and when the arrears run longer still, the Land Office will suspend the registration of rights and juristic acts on that plot until payment is made in full.
The two systems differ in detail, including the time periods, the measures and the rate of additional charges. The first step is therefore to read the project's regulations together with the law that actually applies to the project, and not to copy the methods of another project.
The strongest tool is the day the owner wants to sell or transfer
For a condominium unit, registering a transfer of ownership at the Land Office requires a certificate from the juristic person confirming that no common expenses are outstanding. In a housing estate, the registration suspension described above applies. An owner in arrears therefore cannot sell or transfer until the debt is cleared.
But this tool works only on owners who intend to sell. An owner who has no plan to sell, or who simply leaves the unit empty, will feel no pressure from it at all, and the arrears keep growing until some instalments become time-barred. A juristic person that waits for the owner to come and ask for a debt-free certificate therefore often loses part of the money without realising it.
Priority right: the juristic person is paid ahead of ordinary creditors
Common expenses carry a priority right over that condominium unit or allotted plot. This means that when the unit or land is sold at auction, the juristic person is entitled to be paid from the proceeds ahead of ordinary creditors, in the order the law sets.
A point where juristic persons often slip is a unit that the bank has already seized and sold at auction without the juristic person knowing, because it was not a party to that case. If it does not file a petition to claim payment in the case in which the property was seized within the deadline, it may lose the chance of being paid from that sale. The juristic person manager should regularly check auction notices for units or plots in the project.
Steps for collecting common fees effectively and lawfully
1. Keep a debt register that can be verified. Break the arrears down by instalment, state the due date of each instalment, the additional charges applied, and the evidence that the invoice was sent. This register is the main evidence when you sue. If the figures in the system do not match the invoices, the case will lose time proving the numbers.
2. Notify each owner individually; do not shame them publicly. Send a notice of the arrears to the unit owner at the address they gave and at the address on record, especially for owners who do not live in the unit, for example where it is let out or the owner is a foreigner living abroad. Avoid posting names and debts in public areas of the project.
3. A lawyer's demand letter. If there is still no response after notification, a lawyer's demand letter is often effective with owners who think the juristic person will not sue, and it is evidence that demand was made before legal action.
4. Agree instalment payments in writing. If the owner asks to pay in instalments, put it in writing, stating the total debt, the instalments and the consequences of default. This document restarts the limitation period, and if the owner defaults again it can be used immediately as evidence to sue.
5. Sue only the cases worth suing. Rank the units in arrears by amount, the limitation period of the oldest instalment, and the chance of recovery. Units with high arrears that are close to becoming time-barred should be sued first. Units with small amounts may be resolved through negotiation.
After winning, you still have to enforce
A judgment does not put money in your hands by itself. For common fee debts, there are three kinds of assets to look for.
- Rent that a tenant pays to the unit owner. A unit that is let out is the easiest source of money to attach, because you know who the tenant is and that rent is paid every month.
- Salary or other money that a third party must pay to the unit owner. It can be attached to the extent that it exceeds the amount the law protects for the debtor's living expenses.
- The unit or the plot of land itself. It can be seized and sold at auction, with the juristic person paid under its priority right, but this takes longer and you must weigh it against the amount owed to see whether it is worthwhile.
Finding out what income or assets the unit owner has is the work of asset tracing and enforcement, which should be done before you sue, so that you know where the money will come from once you win.
What not to do, even though it may work quickly
- Cutting off water or electricity inside the unit. The measure the law provides is suspending shared services and use of the common property under the regulations, not cutting off the utilities of a unit that the owner owns.
- Posting names and debts. This risks defamation and a breach of personal data protection law.
- Threatening the owner or chasing through other people, for example demanding payment from a tenant or a neighbour so that they pass the message on.
- Using measures the regulations do not provide for. Every measure must have a basis in the law and the project's regulations. If the regulations are old and do not cover the point, amend them at the general meeting first.
Before suing, check the juristic person's own authority
The juristic person manager represents the juristic person in bringing lawsuits, but the regulations of some projects set internal procedures, for example requiring a committee resolution first. The documents to prepare are the juristic person's registration certificate, evidence of the manager's current appointment, the current regulations, and the relevant resolutions. If the authority to sue is defective, the case may stall from the start even when the debt is clear.
How we can help
We act for condominium and housing estate juristic persons from checking the debt register and limitation periods, sending demand letters in batches and preparing instalment agreements, through filing suit, asset tracing and enforcement of judgment, including filing a claim for payment under the priority right when a unit in the project is seized and auctioned. For an overview of recovering debts, see the guide to debt collection, suing debtors and enforcement of judgment.
If your project has several units in arrears on common fees, send us the list of arrears for assessment. We can tell you which owners to negotiate with, which to sue, and which are close to becoming time-barred.
