VIC: Q&A What is the benefit principle for an owners corporation?

This Q&A is about the benefit principle in a Victorian owners corporation.

Question: Our building is in a larger precinct. Buildings pay into a precinct maintenance fund. We pay more than what is fair. How is our unit of liability calculated, and can it be changed?

I’m a member of a newly formed owners corporation (OC) committee for a new apartment building. We are part of a larger precinct that includes several other buildings. All buildings within the precinct pay into a precinct maintenance fund. Our building has its own OC, and all the other buildings belong to another OC, both managed by the same OC manager.

The apportionment of costs for both OCs is worked out via an equation that utilises each building’s total unit of liability. Our building’s total UoL is high compared to the other buildings. We pay more into the maintenance fund than we believe is fair and equitable, considering our building’s smaller lot sizes and smaller market value.

Who allocates the unit of liability and unit of entitlement for lots when the subdivision is drafted? – The developer? A building surveyor? Title office/Subdivision office?

Answer: Your question should be: should there be separate maintenance plans for each of the separate buildings and should costs associated with the building maintenance be subject to the benefit principle?

How the schedule of lot liability and lot entitlement is calculated initial depends on when the plan of subdivision was registered. Plans of subdivision registered after 1 December 2021 need to be compliant with Section 27F of the Subdivision Act 1988. That section provides:

27F (4)

1. lot liability in the plan must be allocated equally between the lots unless—
   
   1. there is a substantial difference in size between 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; and

2. lot entitlement in the plan must be allocated on the basis of the market value of the lot and the proportion that value bears to the total market value of the lots.
5. For the purposes of subsection (4)(a), lot liability must be allocated on the basis of—
   
   1. in the case of subsection (4)(a)(i)—the size of the lot and the proportion that size bears to the total size area of the lots; or
   2. in the case of subsection (4)(a)(ii)—the size of the lot and level of consumption or use by that lot of the common utilities and the common property; or
   3. in the case of subsection (4)(a)(iii)—the number of bedrooms in the lot.

Ultimately, the decision rests with the surveyor, but is usually guided by the developer. Unless there was a breach of the Act on registration of the subdivision, the only ability to change this is via a unanimous resolution of lot owners or a Section 34D of the Subdivision Act application to VCAT. Both ways are almost impossible.

However, your question really should be, should there be separate maintenance plans for each of the separate buildings and should costs associated with the building maintenance be subject to the benefit principle under Section 49 of the Owners Corporations Act 2006? The answer to that question is probably yes and a careful examination of how levies are struck and for what should be considered. This would require a formal review of your particular situation in order to answer fully. It might be that there is a fairer way of apportioning the costs of the development. Individual owners corporations should also charge fees separately to OC1 to deal with their respective common property.

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

This post appears in Strata News #730.

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Read Next:

• VIC: Q&A Levies, Lot Allocations and Entitlements
• VIC: How to Alter Your Plan of Subdivision – Lot Entitlements and Liabilities

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