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VIC: Q&A Expenses Recovery and Benefits of Common Property

The LookUpStrata Team
vic benefits common property

This Q&A is about cost allocation for improvements and the benefits of common property in VIC strata properties.

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Question: If lot owners do not opt in to email, can the Owners corporation charge them for cost of postage?

Can an Owner Corporation charge postage costs from individual owners if they do not switch to electronic mails?

Can an Owner Corporation pass the below motion:

Communication Motion: THAT the Owners Corporation switch all communication to owners to email from print with the view to go paperless and reduce the cost to the Owners Corporation.

Owners not opting in would be charged individually.

Answer: Annual levies for expenses of the Owners Corporation must be levied on the basis of Lot Liability.

Annual levies for expenses of the Owners Corporation such as postage must be levied on the basis of Lot Liability.

Such a resolution suggested above would be unenforceable.

Phillip Leaman Tisher Liner FC Law E: ocenquiry@tlfc.com.au P: 03 8600 9370

This post appears in Strata News #528.

Question: Regarding multistage developments at the completion, can common areas be consolidated along with Owners Corporations if there is no need of exclusive use for given stages?

Answer: There’s a lot of flexibility to do almost anything on the registration of each further or subsequent stage.

If I’ve understood that correctly the answer is probably yes. It sounds like it’s the stage plan Section 37 of the Subdivision Act 1988 applies to it. On the registration of additional stages, Section 37 gives a whole lot of licence to do all sorts of things. I think that answers your question, but it has to be, of course, also consistent with the originally approved master plan, so there’s a couple of checks. But on those sorts of things, there’s a lot of flexibility to do almost anything on the registration of each further or subsequent stage.

Tim Graham Bugden Allen Graham Lawyers E: tim@bagl.com.au P: 03 9086 5832

This post appears in Strata News #514.

Question: In order to reduce costs, can the committee decide to shut our heated pool over winter even though it might be against the wishes of a small number of lot owners?

We are an estate of 900 lots. The only common property is the Club House which includes an open outdoor swimming pool that is heated in winter.

Can the committee legally shut the pool over winter even though it might be against the wishes of a small number of lot owners. The reason for wanting to shut the pool in the winter is to reduce exorbitant heating costs.

Answer: There is nothing in the Model Rules or the Owners Corporation Act that would prevent the committee from shutting the pool in the winter.

There is nothing in the Model Rules or the Owners Corporation Act that would prevent the committee from shutting the pool in the winter. However, you should also review your Owners Corporation’s special rules to ensure you are able to close it. Many properties with shared facilities will have specific rules for these areas, and these cannot be changed without a special resolution being obtained.

You should also be aware that committee members must exercise due care and diligence. If the committee is concerned other owners may object to closing the pool, it may be worthwhile doing a survey of owners to determine how the majority feel.

Alex Smale The Knight Email P: 03 9509 3144

This post appears in the August 2021 edition of The VIC Strata Magazine.

Question: Is there a recent Victorian ruling related to expense recovery / cost allocation to the effect that the cost recovery of improvements made by the committee must only be allocated only to Lot Owners who benefit from the common property in question?

As I recall, in an earlier message/ mailout, you touched on the recent Victorian ruling related to expense recovery/cost allocation to the effect that (loosely) the cost recovery of improvements made by the committee must only be allocated to Lot Owners, based on a factor related to their “Proportional Benefit” that the Lot Owner receives.

Conceptually it sounds reasonable and I understand it’s now Law, but practically I have a problem in attempting how the Owners Corporation could/would apply it.

Where do I find the Ruling, and most especially examples or models of the calculation in action?

For instance, consider as an example an Owners Corporation of 12 Lots which are in linear Horizontal Grouping ( i.e. Cluster housing – not Vertical Multi-story building).

There is a common concrete driveway up the centre, (a “spine”) passing between the first two houses (lots 1,2), then on between Lots 3,4 and then on between each pair, until it meets the edge of 11 and 12.

If a replacement to the concrete is required at a location just before Pair 1 & 2, then the cost is divided evenly to all 12 Lots because ALL share its benefit, right?

But, if the common driveway needs replacement of a section after 7 and 8, then that cost is only borne by 9,10,11 & 12. This is because Lots 1 through to 8 don’t benefit. Is this correct?

Maybe Unit 12 are Elderly and have no car, so we could argue they, therefore, have no benefit of the driveway and cost are allocated only to three other Lots.

In the past, I would have expected all lot owners to share the repair /replacement of any parts of the common areas but I believe now this is not so.

Hence my interest in understanding the Detail of the new ruling/interpretation…

Surely it would be of wide reader interest to Other Victorian Village/Cluster style Owners Corporations also…

Answer: In my opinion, all owners should contribute to the costs of the maintenance of the driveway.

In my opinion, all owners should contribute to the costs of the maintenance of the driveway.

The seminal decision of McCarthy v Dandenong Region Body Corporate Services (Aust) P/L t/as DR Strata Management concerned repair & maintenance of a driveway, among other common property. The tribunal found that the relevant sections deal with four different categories of liability for payment: fees, charges, contributions and other amounts owing as follows:

  1. Fees: the combined effect of Sections 23(1) and (3) and Section 28(1) of the OCA is that an owner must pay an amount based on lot liability.

  2. Special fees and charges: a combined effect of Sections 24(1) and (3) and Section 28(1) of the OCA is, likewise, that fees must be based on lot liability.

  3. Contributions and other amounts: the effect of Section 28(2) and (3) of the OCA is that there is a general rule and an exception. The general rule is that owners must pay fees in proportion to their lot liability. The exception operates where a requirement to pay a contribution or other amount has resulted from repairs, maintenance or other works which were wholly or substantially for the benefit of some or one, but not all, of the lots. In that case, the lot owners who have benefited more may be required to pay more than their lot liability.

The tribunal made a distinction that fees and charges are amounts that are set and levied prospectively (for example a budget prepared in anticipation of future expenditure) with contributions or other amounts that demanded of lot owners retrospectively, (being particular expenditure, not budgeted for and which has become necessary. The Tribunal found that:

“For the purpose of the retrospective demand, it becomes relevant to enquire whether the expenditure has conferred a benefit upon some lot owners more than others. If it has, the exception referred to above may apply. It never becomes relevant to enquire whether fees and charges, set and levied prospectively, might become spent on things that benefit some lot owners more than others. The fees and charges must be set and levied according to lot liability. There is no right for a lot owner to try to make an adjustment of them later by reason of them actually having been spent upon things that have not benefited that lot owner, or to try to make an adjustment to the setting of them by reason of a likelihood that they will be spent upon things that do not benefit that lot owner.”

In the subsequent decision of Mashane Pty Ltd v Owners Corporation RN 328577, the Supreme Court of Victoria agreed that both annual fees and special fees must be levied on lot liability. However, the court found that the two exemption provisions, ss.28(3) and 49(2), collectively point to a legislative intention that, when levying fees for repairs and maintenance, the OC should generally apply the benefit principle: the lot that benefits more pays more. The Court said:

“ss 28(3) and 49(2) would otherwise have little or no work to do, a reading of the whole Act evinces a legislative intention that a different basis of levying applies to the specific category of fees for repairs and maintenance. That is, where annual fees or special fees are levied for repairs, maintenance or other works undertaken by the owners corporation on common property or lots, which works are wholly or substantially for the benefit of some but not all lot owners, the levy for that component of the fees is to be on the basis of “who benefits more pays more”.

The section was subject to legislative amendment by the Owners Corporations Amendment Act 2013 which commenced on 18th December 2013. Since the amendments the so-called “benefit principle” may be described as follows:

The Senior Member set out the following test [at 16]:

In my view, in the light of the Mashane decision on appeal and of s.24 as it now is, the law requires an owners corporation to act as follows when it sets special fees to cover extraordinary items of expenditure relating to repairs, maintenance or other works.

It must first turn its collective mind to the question of whether all lots benefit substantially from the works or whether some lots substantially benefit more than others.

If, acting in good faith and exercising due care and diligence, as s.5 of the Act obliges it to do, it decides that all lots substantially benefit, it must set fees in accordance with lot liability. There will be no legal error in the decision, and the Tribunal will not interfere with it on the application of an aggrieved lot owner, unless the decision was one which no members of an owners corporation, acting honestly and reasonably, could have made.

Failure to turn the collective mind to the question is a legal error. The error is unlikely to lead the Tribunal to interfere, on the application of an aggrieved lot owner, with a decision to set fees in accordance with lot liability if, in reality, all the lots benefit substantially from the works. Otherwise, the legal error exposes the owners corporation to the risk that the Tribunal will declare the resolution invalid.

If the owners corporation decides that the works are substantially for the benefit of some, but not all, of the lots, it must set fees not in accordance with lot liability but in accordance with the benefit principle so that the owner of the lot that benefits more pays more.

The owners corporation must decide the extent to which the various lots benefit and apportion the fees accordingly. In making the decision it must act in good faith and with due care and diligence. If it does, there will be no legal error in the decision, and the Tribunal will not interfere with it on the application of an aggrieved lot owner unless the decision was outside the range of reasonableness so that it was one which no members of an owners corporation, acting honestly and reasonably, could have made, or unless there has been some other legal error.

However, if the lot owners cannot decide which principle to adopt or cannot decide upon the proper apportionment, and ask the Tribunal to decide, the Tribunal may do so.

Except in a case of urgency, there must be a special resolution for levying the amount of the extraordinary expenditure if it is more than twice the amount of the current annual fees.

In Jalowicki v Owners Corporation Plan No SP35671B (Owners Corporations) [2017] VCAT 50 VCAT applied benefit principle because whilst all lots had use of a walkway the verandah & canopy were a convenience structure, non-essential to the development. I believe Jalowicki was incorrectly decided because the tribunal applied a differential benefit test, rather than a whole or substantial benefit test, but you may assert it to the manager in an effort to receive a reduction. Moreover, section 24(2) does not distinguish between structural and non-structural elements.

The bottom line is this:

Before issuing the special levy the OC was required to consider whether the works wholly or substantially for the benefit of some or one, but not all, of the lots;

The OC must act in good faith and exercising due care and diligence (see Grundl [at 16]) and honestly and reasonably in considering whether the benefit principle applies (see Grundl [at 20]).

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Tim Graham Bugden Allen Graham Lawyers E: tim@bagl.com.au P: 03 9086 5832

This post appears in Strata News #218.

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This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.

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