VIC: The benefit principle when some lots benefit more than others

Question: Can the benefit principle apply to fire safety works on non-common property walls where some lots benefit more than others?

I own a lot in a 12-lot strata building in Melbourne. The building has fire safety defects, including unsealed party walls and service penetrations, which the owners agreed to repair at a shared cost based on lot liability.

During the works, we discovered that the corridor walls are built with non-compliant material and need replacing at an additional cost of $190,000. The plan of subdivision shows that these corridor walls are not common property. About half the lots contain these walls entirely, while the rest have only a small section above their entry door to repair.

Given that the walls are not common property and some lots will benefit more from the works, can we apply the benefit principle so that those who benefit more pay more? Or must the cost still be shared according to lot liability since the works improve the building’s fire safety overall?

Answer: Given that the walls are not common property and the benefit of the works is not evenly distributed, there appears to be a good argument for applying the benefit principle.

Under section 49 of the Owners Corporations Act 2006 (Vic), an owners corporation may recover the cost of repairs, maintenance or other works from lot owners on the basis that the lot owner who benefits more pays more, known as the ‘benefit principle’.

The case of Owners Corporation PS407621Y v Grundl (Owners Corporations) [2017] VCAT 1550, clarified the factors to consider. The case said that, when faced with deciding how to share the cost of building works like fire safety upgrades, an owners corporation must first ask itself a key question: Do all lots benefit substantially from the works, or do some lots benefit more than others?

If the owners corporation genuinely believes that all lots benefit substantially, then it must allocate costs according to lot liability. The Tribunal won’t overturn this decision unless it’s so unreasonable that no honest and careful committee could have made it.

If the owners corporation decides that some lots benefit more than others, for example, if certain lots contain the walls being upgraded while others only receive the indirect benefit of the whole building being improved, it must apply the benefit principle. In this case, the owners corporation must assess how much each lot benefits and apportion the costs accordingly. Again, it must do this in good faith and with reasonable care.

In your scenario, half of the corridor walls are lot property, and the other lots only have a small area above their entry doors affected. Since the walls are not common property, the owners corporation is not automatically responsible for their repair under section 46 of the Act. However, if the works are necessary to ensure compliance with fire safety regulations and affect the safety of the building as a whole, the OC may still have a role in coordinating or facilitating the works.

Given that the walls are not common property and the benefit of the works is not evenly distributed, there appears to be a good argument for applying the benefit principle. The Grundl decision supports apportioning costs based on the degree of benefit received. In this case, lots that own the corridor walls and will receive the most direct benefit from the upgrades (such as improved fire separation and compliance) could arguably be required to contribute more than other lots, who still derive the benefit of a safer building, but whose benefit is incidental.

The fact that the walls are not common property strengthens the case for applying the benefit principle, as the works are not for the collective benefit of all lots in the same way that common property repairs would be. Instead, the benefit is localised and uneven, which aligns with the statutory intent of section 49.

If the owners can’t agree on which principle to apply or how to divide the costs, you could also ask the Tribunal to decide.

Fabienne Loncar
Moray & Agnew Lawyers
E: floncar@moray.com.au
P: 03 8687 7319