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What’s the Impact of Non-payment of Service Charges on Strata Management Firms?

In the last year, there has been a significant decline in the collection of service charges for Strata management companies which have dropped by more than half as collections dropped significantly. This is certainly not good news for OA Management firms as the decline in service charge collection means they will be left with fewer funds to be spent on the maintenance and upkeep of the property.

Why are Homeowners Refusing to pay Service Charges?

The primary reason for the non-payment is rising job losses. Several homeowners have lost their jobs due to the current market slowdown, making it difficult for them to pay their service charges. Furthermore, several homeowners are also taking undue advantage of the situation and avoiding the payments deliberately.

RERA’s Guidelines for the Service Charge Waiver:

According to the Real Estate Regulatory Authority (RERA) – “the waiver only extends to 2019 fines and so far, there has been no extension of this to service charges.”

Considering the situation prevailing at that time, in April 2020 RERA announced exemptions of all fines pertaining to the service charges in 2019. RERA also held discussions with strata management companies (acting on their behalf) which were affected by the non-payment by homeowners. 

RERA’s Suggestions to OA firms on reducing the Service Charges:

Here are the key highlights of RERA’s instructions to OA management companies:

  • RERA suggested OA management firms review and monitor the project operating expenses to reduce service charges. This move is directed towards combating the financial impact of Covid-19 as several homeowners lost their jobs or have experienced salary cuts.
  • RERA has advised OA management firms to reduce their annual budgets which will also curtail these charges. This is undoubtedly glad tidings for the homeowners. Homeowners are looking for some sort of discount; however, they have to pay the charges as approved by RERA.
  • RERA has issued guidelines for OA management firms on the number of notices any homeowner can receive, the penalties for non-compliance, payment timelines, etc. 

The Impact of Non-payment of Service Charges:

Service charges are not a burden or additional expense but the payment towards all good reasons. There is a common belief among many homeowners that these charges are misused for personal gains, however, the truth is completely different. Service charges are spent on maintenance activities and to keep the building operations running smoothly. Their funds have a dedicated government regulatory bank account. The terms of these accounts and industry regulations ensure that they don’t go overdrawn. 

Here are some of the adverse impacts of the Non-payment by homeowners:

  1. Interruption in Maintenance Work: Non-payment of service charges by homeowners leads to lack of funds with strata management firms. This will ultimately pause the ongoing maintenance work and result in the discontinuation of several useful services and maintenance work until funds are available including the disconnection of common area utilities by the utility service providers
  2. Decline in the Value of Property: Home is the biggest asset for everyone. Avoiding the payment puts ongoing maintenance or development work at a temporary halt. This ultimately leads to a decline in the value of property or an asset, which is a far costly affair.
  1. Delays in Essential Services: The non-payment of service charges by the homeowners results in the short-term financial stability of the block. This adversely impacts the homeowners as all essential services (such as – cleanliness, security, MEP maintenance services, maintenance of HVAC system, roof repair, maintenance of gyms, swimming pools, repair work, etc.) will be put on hold due to non-payment.

What can OA Management Firms do to Avoid Non-payment?

As per the process, if the owner does not pay the service charges and ignores three warning notices, the OA will notify RERA and the owner can be declared and registered as a defaulting owner.

In every case, non-payment of annual service charges is unlawful and should not be used as a tool against the OA. The OA must make the payment towards maintenance of the building and that obligation should not be hindered by the owners. RERA approves the annual service charges once the financial statements are completed and filed. 

How to Avoid Non-payment of Service Charges?

  1.  Maintain Transparency:

Most of the challenges in the payment of service charges arise due to a lack of transparency and a communication gap between the OA firms and the homeowners. On a quarterly basis, project updates must be sent with the homeowners informing operational as well as financial matters.

  1. The Significance of Paperwork:

To avoid any confusion as well as for legal purposes, it is important that landlords maintain a comprehensive document that clearly outlines the summary of charges to be paid, the reasons for the increase in charges or difference from the previous year, modes of payment, details on the payment due dates & late payment charges, and the contact details of relevant people or departments owners can speak to clarify their doubts or queries related to service charges.

  1.  Seek Assistance from a Property Management Firm:

Timely payment of service charges is critical for the swift operations of the block. In case landlords struggle to collect rent from the tenant if the property is rented. In that case, they can seek help from a professional property management firm that is backed by a team of dedicated experts to get this all ticking over like clockwork.