VIC: Q&A Levies, Lot Allocations and Entitlements

This article is about lot allocations and levies in VIC.

Table of Contents:

• QUESTION: I’d like to buy a strata lot. How are levies calculated? Do lots that utilise the most common property pay the highest levies?
• QUESTION: Our OC fees are very high. In our large building, the builder holds lots with low liability and entitlement, and uses proxies to help control decision making. Can lot liability be changed to ensure fees are fair for all owners?
• QUESTION: What would the estimated range of costs be for changing lot entitlements in a strata scheme?
• QUESTION: A landlord has suffered loss of rent due to repairs to common property. Does the OCC have the power to reduce that lot’s levies by the amount of the lost rent?
• QUESTION: We purchased off the plan. We feel that our lot entitlement is too high compared to other lot owners that have larger lot areas on the plan of subdivision. What can be done to address this?
• QUESTION: Is there any way to have liabilities changed without having 100% agreement?
• QUESTION: If you’re purchasing a unit, how are the owners corporation fees determined?
• QUESTION: When allocating bills to unit holders for expenses such as owners corporate fees or cost of maintenance projects, is there a principle, guideline, rule or legislation that applies?
• QUESTION: What role does the Victorian strata manager play in ensuring lot allocations are correct for the purposes of issuing levies?

Question: I’d like to buy a strata lot. How are levies calculated? Do lots that utilise the most common property pay the highest levies?

I am looking a purchasing a lot in a Victorian owners corporation. The report states the lot has the highest liability and highest entitlement.

I’ve never been involved with an owners corporation and assumed the lots that utilised the most common property features would pay higher levies. We don’t need to access the common property to get to the lot. The remaining lots do require the common property to access their properties. Why are this lot’s levies so high?

The owners corporation certificate states:

“The current annual fees for the lot are $………. administration fees only and are for the period 1/10/22- 30/09/23, payable in quarterly instalments.”

What are administration fees? Do the lot’s levies contribute to the common area upkeep, maintenance and insurance or not?

Answer: The basis of the liability and entitlement figures may relate to lot market value, square footage of the lot or in a just and fair manner. They may also relate to the amount of common property services for that lot.

It is important to understand the fundamental facets of owners corporation.

The units of liability and entitlement are set when the plan of subdivision is drafted. They relate to the apportionment of costs (units of liability) and voting rights (units of entitlement).

The basis of these figures may be determined by lot market value, square footage of the lot or in a just and fair manner. They may also relate to the amount of common property services for that lot.

The operating account (where expenses are recorded) is the ‘administration fund’. At each AGM, members approve the administration fund budget.

The budget and units of liability determine the amount of levies a member will pay for the administration fund.

The administration fund budget may include operating costs such as the service of the lift/s, caretaking, essential safety measures, inspections, centralised gas, common power, strata insurance etc.

The amount, frequency, arrears and date paid to are all noted in the section 151 certificate – which must be in the Contract of Sale.

Then there may be a ‘maintenance fund’ with its separate budget and levies. The term ‘maintenance fund’ can sometimes be confusing. It is not for repairs and maintenance but usually more long term capital expenses such as roof replacement, lift replacement etc.

Ingrid Goldenfein
OccamStrata
E: [email protected]
P: 03 7042 5659

This post appears in the June 2023 edition of The VIC Strata Magazine.

Question: Our OC fees are very high. In our large building, the builder holds lots with low liability and entitlement, and uses proxies to help control decision making. Can lot liability be changed to ensure fees are fair for all owners?

Our OC fees are very high for our Victorian apartment. After reviewing the plan of subdivision, we’ve discovered:

• 38% of the 290 lots have liability and entitlement of 1 or 2.
• 10% of the lots have a low liability and entitlement, even if their area is comparable to other lots with double entitlement and liability.
• The company that built our building seems to own the lots with the low liability and entitlements.
• At the AGM, employees hold proxies for the low liability and entitlement lots. Unless many owners attend the AGM, this company will use their uneven advantage to push through decisions benefiting them.

Can the owners corporation lot liability be changed to ensure each lot liability is fair for all owners?

Answer: Applications to change lot liabilities can be difficult and time consuming. It is important to obtain legal advice on the specific circumstances.

Lot liabilities can only be changed through a unanimous resolution of the lot owners or pursuant to an application to the Victorian Civil and Administrative Tribunal under Section 34D of the Subdivision Act.

The application has specified statutory criteria to be reviewed and complied with in order for the Tribunal to have jurisdiction to hear the matter.

Since 1 December 2021, Section 27F of the Subdivision Act provides that lot liability in the plan must be allocated equally between the lots unless there is:

1. a substantial difference in size between the lots (based on the size of the lot and the proportion that size bears to the total size area of the lots); or
2. different lots have a bearing on the consumption or use of common utilities or the cost of maintaining the common property; or
3. the number of occupiers in each lot has a greater bearing on the consumption or use of the common utilities or the cost of maintaining the common property than the size of the lot (based on number of bedrooms in a lot).

A surveyor would need to make an assessment as to whether there is any issue with the lot liability and if so, the factors in Section 34D would need to be considered.

Applications under Section 34D can be difficult and time consuming. It is important to obtain legal advice on the specific circumstances.

Phillip Leaman
Tisher Liner FC Law
E: [email protected]
P: 03 8600 9370

This post appears in the June 2023 edition of The VIC Strata Magazine.

Question: What would the estimated range of costs be for changing lot entitlements in a strata scheme?

I have a query relating to the process for changing lot entitlements in a strata scheme. I have read the details relating to the Act as to the various considerations in how lot entitlements could be calculated, the need for consensus (or VCAT) if not.

My query specifically relates to the legal process to re-evaluate and hence the types of costs we might incur in going down this path. I believe all owners will be agreeable but also understand it has to be done legally and registered with the appropriate authorities before any strata fees can be re-calculated.

Do we have to engage a surveyor to come on site and measure up or can they work from amended plans of subdivision etc or can we simply tell a strata lawyer how the entitlements should be split in future (with agreement by all owners) and have that drawn up to accommodate the legal registration process?

What is the estimated range of costs we should anticipate for such a process? We are a strata of 8 townhouses.

Answer: The costs of applying to VCAT will ultimately depend on the time spent. The major factor which will affect that variable is whether the proceeding is undefended or (seriously) defended.

Under s.32(k) of the Subdivision Act 1988 if there is a unanimous resolution of the members, an OC may proceed to create, alter or extinguish lot entitlement or lot liability in any way necessary.

If a unanimous resolution is not sought or obtained:

1. Under s.34D(1)(a) and (2) a member, the OC, an administrator or a person with an interest in the land affected by the OC may apply to VCAT for an order requiring the OC to do any of the things set out in s.32 – including removal of the height limitation – even though there is no unanimous resolution of the OC authorising the action. If the OC is to be the applicant a special resolution is required to authorise the proceeding under s.18(1) of the Owners Corporations Act 2006; and
2. Under s.34D(1)(b) and (3) a member, the OC, an administrator or a person with an interest in the land affected by the OC may apply to VCAT for an order consenting on behalf of a member or group of members of an to the doing by the OC of any of the things set out in s.32. VCAT must be satisfied that satisfied that—
1. the member or group of members cannot vote because the member is or the members are dead, out of Victoria, or cannot be found; or
2. for any other reason it is impracticable to obtain the vote of the member or members; or
3. the member has or members have refused consent to the proposed action and—
   
   1. more than half of the membership of the OC having total lot entitlements of more than half of the total lot entitlements consent to the proposed action; and
   2. the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the members who did not consent to the action.

The leading case on point is Conroy v Owners Corporation Strata Plan 30438 (Owners Corporations) [2014] VCAT 550 (23 May 2014) in which I acted on behalf of the successful Applicants. The applicants proceeded under s.34D(1)(a) to amend the schedules of entitlement and liability on the basis they were unfair. The application did not proceed under s.34D(1)(b) and no effort was made by the applicants to meet the criteria imposed by subsection (3). An owner who stood to losing lot entitlement and accrue additional lot liability opposed the application on the bases including that subsection (1)(b) took primacy over subsection (1)(a). VCAT, constituted by the President, His Honour Garde J, allowed the application to proceed and it was ultimately decided in favour of the applicants (see Conroy v Owners Corporation SP 30438 (Owners Corporations) [2014] VCAT 1413 (12 November 2014); The Concept Developer Pty Ltd v Conroy & Ors [2015] VSC 464 (14 September 2015)).

The VCAT application may be made by:

• A member (or members) of the OC;
• the OC (however a special resolution may be required);
  an administrator;
• or a person with an interest in the land affected by the OC (which probably means mortgagees; possibly insurers).

However, the Land Registry will not register the amendment without the consent of all mortgagees of lots in the strata plan. Mortgagees will need to make their duplicate Certificates of Title available. All financiers have different requirements, which may include application fees, valuations and other matters. Mercifully, VCAT may make an exempting order under s.34D(1)(c) and (5) dispensing with the requirement for mortgagees’ consents. That will overcome difficulties you may encounter in mobilising owners to cause their mortgagees to consent to the amendment. VCAT will waive mortgagees consents if it is satisfied that—

1. the person whose consent is required is dead or out of Victoria or cannot be found; or
2. it is otherwise impracticable to obtain the person’s consent; or
3. it is impracticable to serve the person with the notice under section 22(1B) of the Subdivision Act (namely mortgagees, registered lessees, annuitants and caveators).

In Real Estate Victoria Pty Ltd v Owners Corporation No 1 PS332430W [2021] VSC 373 (REV decision) Her Honour Justice Richards declined to follow Conroy. In Conroy, His Honour Justice Garde decided that the application may be brought under s 34D(1)(a) of the Subdivision Act need not be made only under s 34D(1)(b) of the Subdivision Act. However, in REV, Her Honour disagreed and stated as follows:

[59] I have concluded that, in the absence of a unanimous resolution of members, s 34D does not empower the Tribunal to make an order requiring an owners corporation to apply to the Registrar under s 33 to alter lot entitlement or lot liability unless the requirements of s 34D(3) are met. Regretfully, I am unable to agree with Garde J’s analysis of the provision in Conroy. This is largely due to two subsequent decisions of the High Court.

[85] As a result, the Tribunal cannot make an order under s 34D(6) requiring an owners corporation to apply to the Registrar under ss 32 or 33 to alter a plan of subdivision on an application under s 34D(1)(a), if there is not a unanimous resolution of the members, without also making an order consenting on behalf of the members who did not vote in favour of the resolution. In order for the Tribunal to make the latter order, it must be satisfied of the relevant conditions in s 34D(3).

And so, since the REV decision, it is necessary to meet the criteria of s.34D(1)(a) and (b).

The costs of applying to VCAT will ultimately depend on the time spent. The major factor which will affect that variable is whether the proceeding is undefended or (seriously) defended. By “seriously” I mean that the contradictors commit resource to legal representation, engaging experts etc. A precise cost estimate should be requested from your lawyer based on the discrete facts of your case.

Tim Graham
Bugden Allen Graham Lawyers
E: [email protected]
P: 03 9086 5832

This post appears in Strata News #554.

Question: A landlord has suffered loss of rent due to repairs to common property. Does the OCC have the power to reduce that lot’s levies by the amount of the lost rent?

Could an OCC pass a motion in favour of reducing a particular lot owner’s levy for a fixed period?

Authorised works are being conducted on a lot owner’s property. The works have resulted in loss of rental to the landlord. The landlord is looking for the OC fees to be reduced by the amount of the lost rent.

Does the OCC have the power to reduce the levy or would an Extraordinary General Meeting be required?

Answer: The committee does not have a legal power to reduce an owner’s levy contribution

In Victoria, the committee does not have a legal power to reduce an owner’s levy contribution.

That said, it is lawful for the committee to pass a resolution that the OC would provide a credit to the owner’s account as a result of the circumstances described, being loss suffered by the owner caused by the OC to the owner’s property. Alternatively, the committee could decide to pay the owner cash for the loss the owner has suffered.

Rochelle Castro
RC & Co Lawyers
E: [email protected]
P: 1300 072 626

This post appears in Strata News #543.

Question: We purchased off the plan. We feel that our lot entitlement is too high compared to other lot owners that have larger lot areas on the plan of subdivision. What can be done to address this?

Answer: I think it’s a matter of getting an expert opinion about what the actual consumption is.

If it’s wrong, it’s wrong.

As it stands, we’re pretty clear that entitlement is based on value and liability is based on adjusted and equitable contribution to the Owners Corporation’s expenses.

I noted they question about size, and I think size is not directly relevant to value, or consumption, it’s indirectly relevant to both. Obviously, when value is calculated, value size is one of the many things they’ll take into account but it’s not the only determinative. In terms of the relationship between size and consumption, the bigger the lot, the more people that it might accommodate and the more people there are, the more consumption there may be.

You could give extreme examples where this just goes the completely wrong way. You might have a hole in the wall coffee shop at ground level as compared to a penthouse that takes up a whole floor plate at the top. The penthouse might be rarely occupied and all the waste and the services, water and utilities of these sorts of things are going to be disproportionately highly consumed by that retail enterprise at the bottom. So you’ve got to be very careful looking at size. I’ve just extrapolated the size quotient of that question because I thought those comments were important to make.

I should also say that evaluations are going to be subjective to valuations by valuers. In these cases, whether you’re going to VCAT, or you’re seeking a robust and maximising the prospect of unanimous resolution passing, you’re probably going to need some pretty good evidence. For an entitlement based on value, it’s an evaluation. That’s pretty clear. For liability based on consumption, it’s something that typically surveys do. I have used surveyors as experts in all those cases we’ve (discussed in the Webinar) [https://youtu.be/t9BSjV7SXBo], and their evidence has largely been accepted.

What can be done? I think it’s a matter of getting an expert opinion about what the actual consumption is. Obviously, there’s a little bit of forensic arithmetical exercise in that, but at the end of the day, what you want to do is get an opinion as to what the consumption is. If the opinion agrees with your own, that you’re paying an unequal amount, you’ve got robust evidence. Then you apply to VCAT for an order that the plans change and the schedule of liabilities are amended to reflect proper consumption.

Tim Graham
Bugden Allen Graham Lawyers
E: [email protected]
P: 03 9086 5832

This post appears in Strata News #521.

Question: Is there any way to have liabilities changed without having 100% agreement?

Is there any way to have liabilities changed without having 100% agreement? We have a vast majority of votes returned in favour of a review. However, we cannot even get 75% of eligible votes for anything.

Answer: We don’t need to do entitlement contemporaneously.

We’ve been using the terms entitlements and liabilities collectively. They don’t have to be dealt with separately. You might, for example, unanimously seek to resolve or apply to VCAT to change only the lot entitlement or the lot liability. You’re not necessarily having to do both. I’ve just taken that question and I’ve fashioned the fact that it does refer to lot liability only. I’ve taken that part of it and said ‘I think it’s a good question because it makes it clear to us that we can just make an application or unanimously resolve in regards to liability. We don’t need to do entitlement contemporaneously.

Tim Graham
Bugden Allen Graham Lawyers
E: [email protected]
P: 03 9086 5832

This post appears in Strata News #518.

Question: If you’re purchasing a unit, how are the owners corporation fees determined?

Answer: When someone purchases the apartment, they get the section 32 document which identifies the Owners Corporation fees for that lot.

For a brand new development, the developer will prepare a budget for that property, and that’s usually for a year, an annual term. When someone purchases the apartment, they should get the section 32 document, which entails the Owners Corporation certificate. This will basically identify the Owners Corporation fees for that lot. When someone buys, they’ll be responsible for the balance of the fees for that remaining year.

If there is a debt with the lot, that debt stays with the lot and therefore the purchaser would take on that debt. However, when the settlement of a property occurs there is what is called the statement of adjustments where the conveyancer will typically reimburse the Owners Corporation for the outstanding amount.

If there are works undertaken in a common property or a lot which is wholly or substantially for the benefits of one, or more many lot owners, but not all of our owners, then, know the costs of those works can be invoiced to that group of owners who benefit from the work. So basically, it’s based on units of liability in the first instance.

Gregor Evans
The Knight
Email
P: 03 9509 3144

This post appears in Strata News #505.

Question: When allocating bills to unit holders for expenses such as owners corporate fees or cost of maintenance projects, is there a principle, guideline, rule or legislation that applies?

When allocating bills to unit holders for expenses such as owners corporate fees or cost of maintenance projects, is there a principle, guideline, rule or legislation that applies?

Do bills get divided equally between all members of an owners corporation or does the size of each unit determine the allocation?

Answer: When it comes to the division or apportionments of Owners Corporation fees, it comes down to what is stipulated on the plan of subdivision.

When it comes to the division or apportionments of Owners Corporation fees, it comes down to what is stipulated on the plan of subdivision. Whenever a parcel of land is subdivided into private lots as well as common areas, a plan of subdivision must be created and that is registered with the land title’s office Victoria.

A land surveyor will prepare that plan of subdivision and they will allocate what is called units of liability to every individual private lot on that plan of subdivision.

Sometimes lots have equal units of liability. However, at other times those units of liability do differ, and it does sometimes come down to the size of the lot, and also the location of the lot. For example, if it’s an apartment building, it could be that a lot towards the top of the tower has more units of liability than the lot on the on the ground floor because the people residing in that lot utilise the common areas more than those in the ground floor e.g. using the lift because the ground floor occupiers don’t use the lift, whereas those on the top floor do.

It’s the responsibility of the land surveyor to determine the units of liability and the calculation and there was a change to the subdivisions Act recently where it specifies that the reasoning must be provided with the plan of subdivision as to how the units of liability are calculated.

There’s also units of entitlements, which are also prepared for each lot. Sometimes the units of lot entitlement and liability are the same. However, typically speaking, units of entitlements should be based upon the value of each lot, whereas units of liability should be based upon the usage of common property. Typically, these days, I’m dealing with a lot of land surveys. They look at how many bedrooms are within an apartment potentially or for an office, how large the office suite is, if it’s an Owners Corporation and work out the size and the number of bedrooms to determine how many units of liability that lot should have.

Gregor Evans
The Knight
Email
P: 03 9509 3144

This post appears in Strata News #479.

Question: What role does the Victorian strata manager play in ensuring lot allocations are correct for the purposes of issuing levies?

Answer: It is an Owners Corporations responsibility to ensure levies are issued in accordance with Lot Liability.

A great question, and one that has a few parts which link together. It is an Owners Corporations responsibility to ensure levies are issued in accordance with Lot Liability. Sec 23 of The Owners Corporation Act 2006 covers this:

23. Owners corporation may levy fees

1. An owners corporation may set annual fees to cover—
   
   1. general administration; and
   2. maintenance and repairs; and
   3. insurance; and
   4. other recurrent obligations of the owners corporation.
2. If the owners corporation has an approved maintenance plan, the annual fees must include fees that are—
   
   1. designated for the purpose of the maintenance plan; and
   2. sufficient to allow the maintenance plan to be implemented.
3. The fees set must be based on lot liability.

However, most Owners Corporation’s employ a Manager to carry out this function, and delegate the authority to do so. This is completed under Sec 11.

11. Management of owners corporation and power to delegate

1. An owners corporation is to be managed by or under the direction of the lot owners.
2. Subject to subsection (3), an owners corporation may, by instrument or by resolution at a general meeting, delegate any power or function of the owners corporation to—
   
   1. the committee of the owners corporation;
   2. the manager of the owners corporation;
   3. a lot owner;
   4. the chairperson of the owners corporation;
   5. the secretary of the owners corporation;
   6. an employee of the owners corporation.
3. An owners corporation must not delegate any of the following powers or functions under
   subsection (2)—
   
   1. a power or function that requires a unanimous resolution, a special resolution or a resolution at a general meeting;
   2. the power of delegation under that subsection.

By delegating the power to raise fees, the Manager is bound to do so in accordance with the requirements conferred on the Owners Corporation under Sec 23.

To provide weight to these obligations, both the Manager and Owners Corporation have duties under the Act (Sec 5 and 122). These are to act honestly and in good faith and they must exercise due care and diligence when carrying out their role(s).

The best way to ensure that the lot liabilities are correct is to obtain an up to date Owners Corporation Search Report from Landata Victoria. This is a simple exercise, taking around five minutes and costing no more than ten or fifteen dollars.

The Search Report is often grouped with the Plan of Subdivision. These documents are available to anyone willing to pay the small fee.

Once this document has been obtained, lot liabilities can be confirmed by the Manager.

Remember to ensure you don’t confuse lot liability with lot entitlement. These are often the same value but are applied to different circumstances. When raising fees, as stated earlier, they are done so based on lot liability.

If you have a query about the allocation of fees, your levies or lot liability, it is recommended to discuss this with your Manager.

Joel Chamberlain
Horizon Strata Management Group
E: [email protected]
P: 03 9687 7788

This post appears in Strata News #352.

Have a question about lot allocation and levies or something to add to the article? Leave a comment below.

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