Recently passed Victorian legislation provides clarity on the basis in which annual fees are to be set by Owners Corporations and establishes the procedure for Owners Corporations to follow for levying special fees, upgrading fees and recovering costs
The Owners Corporation Amendment Act 2013 (Vic) (“the Amendment Act“) came into effect on 18 December 2013 and inserts several new clauses into the Owners Corporation Act 2006 (Vic) (“the Owners Corp Act“).
The Amendment Act’s two express purposes are:
- To clarify the basis on which annual fees are set by Owners Corporations and
- To provide for the way in which Owners Corporations recover costs and levy special and upgrading fees in relation to works that are wholly or substantially for the benefit of some or one, but not all, lots.1
The key changes are:
- Annual Owners Corporation fees must be set according to lot liability, including costs for repairs, maintenance or other works. This is so even where the works on which the annual fees are partly based do not benefit all the lots affected by the Owners Corporation and are instead wholly or substantially for the benefit of a few lots.2
- Fees for extraordinary items of expenditure relating to repairs, maintenance or other works, undertaken wholly or substantially for the benefit of only certain lot owners will now be levied on the basis of the “benefit principle”. This means that those lot owners who achieve the greatest benefit from the extraordinary items of expenditure will pay a higher amount of the costs than those who derive less benefit.3
- An Owners Corporation now has the ability to recover costs for repairs, maintenance and other works to lots or common property on the basis of the benefit principle. Where no lot benefits more than other lots, it will be based on lot liability.4
- Where Owners Corporations determine by special resolution to carry out upgrade works to common property, the levying of fees must now be based on the benefit principle. Where no lot benefits more than other lots, it will be based on lot liability.5
Why the change?
The Amendment Act was introduced in response to the Victorian Supreme Court decision of Mashane Pty Ltd v Owners Corporation 328577  VSC 417.
Macaulay J of the Victorian Supreme Court in Mashane defined the benefit principle as “those who benefit more, pay more” and extended its application under the Owners Corp Act. Macaulay J held that the benefit principle not only applied to special fees for repairs, maintenance and other works but also for annual fees in relation to such works.
Whilst supportive of applying the benefit principle to the levying of special fees for extraordinary works, the Victorian Government expressed concern that Owners Corporation disputes were likely to increase with regards to annual fee estimates as a result of the decision in Mashane.6
The Amendment Act resolves this by requiring that annual fees be set according to lot liability, whilst allowing the Owners Corporation to levy special fees or recover costs for repairs, maintenance and other works on the basis of the benefit principle.
The benefits to you
A key criticism of Mashane was that the application of the benefit principle to annual fees would result in Owners Corporations having to identify all prospective works for the upcoming year when setting annual fees. Further practical difficulties would also arise when the Owners Corporation would need to budget for all such works, identify who would benefit from any works and to what degree and to issue fee notices to each lot owner incorporating the full costs.7
The Amendment Act changes this position and clarifies the application of the benefit principle under the Owners Corp Act. Annual fees will now be set according to lot liability, but the benefit principle can still be applied to repairs, maintenance and other works which only benefit certain lot members.
The Amendment Act helps to ensure that lot owners who marginally benefit from urgent works to a lot will not have to pay a similar rate to fellow lot owners who receive the lion’s share of the benefit. However, difficulty with the use of the benefit principle may arise. When determinations are made for as to how much each lot owner pays, there will be instances where, whilst certain lot owners may appear to benefit from the works more than others, the works may serve to benefit the value of the entire development and have a significant positive impact for each individual lot owner.
1 Section 1 of the Owners Corporation Amendment Act 2013 (Vic).