How is penalty interest on overdue levies calculated?

Penalty interest is charged on the outstanding amount at the penalty interest rate, which is 10% per annum as at June 2026, and it accrues daily until the debt is paid. It is generally applied as simple interest on the unpaid balance rather than compounding on previously accrued interest, and a final notice must state the amount of penalty interest that will accrue daily until it is paid. The practical effect is that the longer a levy stays unpaid, the more interest builds, and the figure stops growing the day the levy is cleared.

Can a lot owner still vote if their levies are in arrears?

Not on everything. If a member does not pay their fees or levies, they lose the right to vote on matters requiring an ordinary resolution, but they can still attend meetings and may still vote on matters requiring a special or unanimous resolution. Ordinary resolutions cover most routine decisions, such as approving the annual budget. A lot owner in arrears also cannot vote as a proxy on behalf of another lot owner. Voting rights on ordinary matters are restored once the arrears are paid.

If I sell my lot, who pays the outstanding levies, penalty interest and fees?

Outstanding amounts effectively follow the lot. Under section 28 of the Act, the current owner, and any purchaser in possession of the lot, are liable to pay any outstanding fees, charges, contributions or amounts owing to the owners corporation in respect of that lot, which is why arrears need to be adjusted and paid at settlement or the new owner becomes responsible. Because of this, a buyer should obtain an owners corporation certificate before purchase, which discloses exactly what is owed on the lot, including any penalty interest.

If it goes to VCAT, can I be ordered to pay the owners corporation's recovery costs too?

Often, yes. When an owners corporation recovers unpaid levies through VCAT, it can seek an order requiring the lot owner to pay the levies, plus interest, and the reasonably incurred legal costs. This means the total an owner ends up paying can be well above the original levy. The costs awarded are at the Tribunal's discretion, which is a strong practical reason to resolve arrears before they reach that stage.

Overdue OC Levies: Who Pays Penalty Interest and Reminder Fees in Victoria?

Key Takeaways:

Penalty interest charged on overdue levies belongs to the owners corporation, not the owners corporation manager.
Reminder notice fees are often charged under the management agreement and typically belong to the owners corporation manager.
Victorian owners corporations can waive penalty interest in certain circumstances.
Committees should understand how levy recovery fees operate before appointing or renewing an Owners Corporation Manager.

When a lot owner falls behind on their levies, new charges often start appearing on their account, usually penalty interest and reminder notice fees.

Most people assume both go to the same place. They don’t. Penalty interest and reminder fees serve different purposes and are frequently paid to different parties, which is where most of the confusion and disputes begin. Whether you are a lot owner questioning a charge on your levy account or a Committee member reviewing recovery practices, knowing how these fees work helps you avoid both.

This article explains how penalty interest and reminder fees operate in Victoria, who actually receives them and what happens when owners corporation levies stay unpaid.

Who pays for penalty interest and reminder fees on overdue OC levies?

In Victoria, penalty interest charged on overdue levies belongs to the owners corporation. It compensates the owners corporation for being out of pocket while a lot owner remains behind, and the entitlement to charge it sits under the Owners Corporations Act 2006.

Reminder notice fees work differently. These are administrative charges, usually imposed under the management agreement, and in many cases they are retained by the owners corporation manager rather than the owners corporation. The exact treatment depends on what the management agreement says.

The reason these two charges are paid to different parties comes down to where each one comes from.

Penalty interest is authorised under Victorian legislation.
Administrative reminder fees are generally governed by the management agreement between the owners corporation and the owners corporation manager.

That difference in source is what determines who is entitled to each charge. So while both fees can arise from the same unpaid levy, they are separate charges serving different purposes. The sections below explain each one in detail.

Penalty interest on arrears

Section 29 of the Owners Corporations Act 2006 allows an owners corporation to charge interest on amounts a lot owner has not paid by the due date, including overdue levies. This power only applies if it has been authorised by a resolution at a general meeting.

The interest rate cannot exceed the maximum rate set under the Penalty Interest Rates Act 1983. As of June 2026, the Victorian penalty interest rate is 10% per annum, a figure that has applied since 1 February 2017. The Act also allows the owners corporation to waive interest in a particular case.

The practical point for lot owners is this: if the owners corporation has not passed the required resolution, it has no authority to charge penalty interest at all. For Committees, that resolution is the compliance step that makes any interest charge valid. Where the authority exists, and the rate stays within the legal maximum, penalty interest on overdue levies is enforceable.

Who receives the penalty interest?

Penalty interest belongs to the owners corporation.

The purpose of penalty interest is to compensate the owners corporation for the financial strain caused by unpaid levies. When levies are not paid, the owners corporation is still responsible for insurance premiums, maintenance costs, utility expenses and other shared obligations. Penalty interest helps offset that shortfall and encourages lot owners to pay on time.

It does not belong to the owners corporation manager. The manager is not the party left out of pocket when levies go unpaid; the owners corporation’s funds are, which is why the interest flows back to the owners corporation.

Can penalty interest be waived?

Yes. The Owners Corporations Act 2006 specifically allows an owners corporation to waive penalty interest in a particular case.

There may be circumstances where a Committee considers a waiver appropriate, including:

genuine financial hardship
payment processing errors
administrative mistakes
disputes regarding the amount owing
exceptional personal circumstances

A lot owner who wants interest waived usually makes the request in writing to the owners corporation or its manager, setting out the circumstances, and the owners corporation then decides.

The Act also requires the owners corporation to report any decision to waive, or not waive, interest, along with the reasons, to the annual general meeting. This built-in reporting obligation is why a consistent and transparent approach matters. While every situation should be assessed on its own merits, applying clear and even-handed reasoning helps the Committee meet that obligation and reduces the risk of disputes.

Administrative fees for payment reminder notices

Many owners corporations engage an owners corporation manager to assist with administration, financial management and levy collection. The relationship between them is governed by the management agreement, or contract of appointment.

This agreement usually sets out which services are covered by the annual management fee and which services cost extra. Levy arrears management is often one of the additional services, so some agreements include separate fees for:

reminder notices
final notices
arrears correspondence
debt recovery administration

Who receives these fees?

Unlike penalty interest, these administrative fees usually belong to the owners corporation manager. They generally reflect the extra administrative work involved in chasing overdue payments. The exact structure depends on the management agreement, so a lot owner or Committee can check that agreement to see precisely which arrears fees apply and when.

Why Committees should pay attention to reminder fees

One of the most common mistakes Committees make when comparing management proposals is focusing only on the annual management fee. Additional charges such as reminder notice fees, debt recovery administration fees and breach notice fees can significantly change the overall cost of the arrangement.

Before appointing or renewing a manager, Committees should understand:

when reminder fees are triggered
how much is charged
who receives the fee
whether the fee is passed on to the lot owner
whether the fee reflects reasonable value for the work performed

What looks like a lower annual management fee can be offset by higher administrative charges elsewhere in the agreement.

If your Committee is reviewing management agreements and wants greater clarity around levy recovery fees, Strata Management Consultants can help you understand how different fee structures operate and what more transparent alternatives can look like.

What happens if levies remain unpaid?

Levy recovery in Victoria follows a structured pathway.

It usually begins with a fee notice, which gives the lot owner 28 days to pay. If the amount stays unpaid, the owners corporation may issue a final notice, again allowing 28 days and stating its intention to take recovery action.

Throughout this period, and depending on the authority the owners corporation has in place, penalty interest may accrue and administrative reminder or arrears fees may be added to the account.

If the debt remains unresolved after the final notice, the owners corporation can apply to VCAT to recover the amount owing. Recent decisions have confirmed that VCAT, not the Magistrates’ Court, is the forum for recovering unpaid fees and levies from a lot owner. The Magistrates’ Court only comes into play at the enforcement stage if the lot owner does not comply with a VCAT order.

The longer a debt stays outstanding, the greater the financial impact, both on the lot owner facing accumulating charges and recovery costs, and on the broader owners corporation, which still has to fund shared obligations in the meantime.

Are penalty interest and reminder fees always enforceable?

Not necessarily.

Penalty interest can only be charged where the owners corporation has the proper authority, meaning a resolution passed at a general meeting, and where the rate stays within the maximum set by Victorian legislation. Without that authority, the interest has no valid basis, regardless of how it appears on the account.

Reminder and arrears fees rest on a different foundation. They should be supported by the management agreement and clearly disclosed. A fee that is not provided for in the agreement, or that has never been disclosed, stands on shaky ground.

There is also a difference between a charge that is invalid and one that is simply worth questioning. A charge with no authority behind it should not be accepted at face value. A charge that is properly authorised but looks high, unclear or inconsistent with the agreement may still be valid, but a Committee is entitled to review it before treating it as reasonable.

This is where transparency does its work. Both lot owners and Committees should be able to see:

what has been charged
why it has been charged
who receives the money

What can a lot owner do if a charge seems wrong?

If you are a lot owner and a charge on your account does not look right, you have options before paying it.

Start by asking the owners corporation or its manager for an itemised breakdown of what has been charged and why. For penalty interest, you can ask whether the owners corporation passed the resolution that section 29 requires, because without it the interest has no valid basis. For a reminder or arrears fee, you can ask to see where the management agreement provides for it.

If the charge still seems unclear, excessive or unsupported, raise it with the Committee in writing. If it cannot be resolved that way, fee disputes between a lot owner and an owners corporation can ultimately be taken to VCAT.

Balancing fairness and recovery

Owners corporations and Committees should try to balance a lot owner’s individual circumstances against the need to collect levies. Levies fund the community’s shared costs, and if too many owners fall behind, the owners corporation can struggle to meet its obligations. Penalty interest and reminder fees both have a legitimate role here, and owners corporation managers are professionals who should be paid for genuine additional work.

The real question is whether those charges are fair, clearly disclosed and represent reasonable value. As we often say, the devil is in the detail. We have had Committees report reminder and breach notice fees of several hundred dollars per notice, and whether a charge like that is reasonable is usually judged most harshly by the person paying it.

What Committees should review before signing a management agreement

The earlier questions are easier to answer with a clear checklist in hand. Before appointing or renewing an owners corporation manager, Committees should review the agreement for:

reminder notice fees
final notice fees
debt recovery administration charges
breach notice fees
additional hourly rates
disbursements
commission arrangements

For each of these, it is worth confirming one more thing: who actually bears the cost. Some charges are passed directly to the lot owner in arrears, while others are paid by the owners corporation as a whole. Knowing which is which avoids surprises later.

Reviewing these items upfront helps prevent disputes and gives every lot owner greater transparency over how levy recovery is charged.

Concerned about levy recovery fees in your owners corporation?

Penalty interest belongs to the owners corporation, while reminder and arrears fees usually belong to the manager under the management agreement. That distinction is only one part of sound financial management.

Committees also benefit from understanding how levy recovery procedures, management agreements and administrative charges affect both individual lot owners and the wider owners corporation.

If your Committee wants a clearer view of its current arrangements, from how arrears are handled to where each charge ends up, our consultants can help you work through it.