VIC: Owners Corporation Levy Increases and Due Dates

Question: Can an owners corporation increase the annual budget to fund a large upgrade instead of raising a special levy under the benefit principle?

Our Tier 4 owners corporation refuses to establish a maintenance fund. It now faces a large repair and upgrade expense that is four times the annual fees budget. The committee, controlled by three of six owners, is trying to cover the cost by increasing the annual budget over several years, which has already more than doubled quarterly fees in the past three years. This approach charges all owners equally.

Sections 52 and 53 of the Owners Corporations Act 2006 state that upgrade works costing more than twice the annual budget must be approved by special resolution and funded via a special levy apportioned under the benefit principle. By raising the annual budget instead, the committee appears to be avoiding this requirement and charging owners unfairly. Is the annual budget intended only for ongoing, recurring expenses? Is the committee legally allowed to increase it in this way to fund a one-off major upgrade?

Answer: The response depends upon whether the work is maintenance and repairs, or an upgrade.

Long-term maintenance needs are a frequent ‘point of debate’ within community living. While the Owners Corporations Act 2006 (the Act) lays out the framework, there is a lot of grey areas for many of the circumstances that arise, and this leads to a lack of clarity as to ‘how’ the Act comes into effect. Let’s try and unpack what is happening from a holistic viewpoint.

First off, there are six owners, and as you rightly observed, a quorum is achieved for any decision once three owners vote the same way. Any ordinary resolution of the owners corporation can be made by three in favour. If all six owners vote and there’s a tie of three-a-piece, the chairperson has a casting vote. As this hasn’t been raised in your background, we can set that aside for now.

Secondly, there are two considerations – the approval for the works, and the funding + payment of the works.

Let’s start with the works themselves. The owners corporation has a “repair /upgrade” expense. This is actually a really critical detail – so let’s play each pathway out.

“Repair” – the owners corporation has a fundamental obligation within the Act – see Section 4;

4 Functions of owners corporation

An owners corporation has the following functions—

1. to manage and administer the common property;
2. to repair and maintain—
   1. the common property;
   2. the chattels, fixtures, fittings and services related to the common property or its enjoyment;
   3. equipment and services for which an easement or right exists for the benefit of the land affected by the owners corporation or which are otherwise for the benefit of all or some of the land affected by the owners corporation;

This is reiterated further in section 46, but as an obligation under the word “must”.

And under section 11 of the Act (and let’s presume also via delegation at the AGM), the committee is delegated the powers and functions of the owners corporation;

11 Management of owners corporation and power to delegate

5. If no delegation is in force under subsection (2)(a), the committee of the owners corporation is delegated all powers and functions that may be exercised by the owners corporation, except for—
   1. those powers and functions set out in subsection (3); and
   2. those matters which must be determined at a general meeting under section 82.

What are the limitations of subsection 3?

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.

So, in short, if a special or unanimous resolution is required, then it’s not a committee decision.

Summarising what this all means – if the item is a ‘Repair’, then whatever that item is, can be approved by committee (or by an ordinary resolution at a general meeting of the owners corporation), insofar as the necessary works are concerned.

“Upgrade” – it’s not clearly defined down to the Nth-degree what constitutes an “upgrade”, this is the wording of s53 of the Act;

53 Upgrading of common property

1. An owners corporation may by special resolution approve the carrying out of upgrading works for the common property and the levying of fees on lot owners for that purpose.
   • (1A) Subject to subsection (1B), the fees must be based on lot liability.
   • (1B) Fees for upgrading works carried out wholly or substantially for the benefit of some or one, but not all, of the lots affected by the owners corporation must be levied on the basis that the lot owner of the lot that benefits more pays more.
   • In this section upgrading works means building works for the upgrading, renovation or improvement of the common property where—
   1. the total cost of the works is estimated to be more than twice the total amount of the current annual fees; or
   2. the works require a planning permit or a building permit before they can be carried out—

but does not include works that are provided for in an approved maintenance plan or works referred to in section 4(b).

So, in short – repair would fall under the authority of an ordinary resolution, and upgrade requires a special resolution. Note especially that s53(2)(b) also explicitly confirms that s4(b) works do not count as an upgrade, and thus do not require a special resolution.

For funding, s23 of the Act spells out that the owners corporation may set annual fees;

23 Owners corporation may levy annual 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.

If the works in question are a repair, it seems fair and reasonable for the owners corporation to build up the fees to cover the works over a period, if the state of repair facilitates this – i.e. let’s call it, ‘important but non-urgent’. The wording in subsection (d) touches on “other”, so it’s prudent to consider whether this implies that the repairs required must be specifically recurrent in their own right. I would venture ‘no’, are a repairs as a general recurrent category and obligation. That is, it’s expected there will be a recurrent need to fund repairs, and the statutory obligation to undertake those repairs.

Owners corporations accrue annual surpluses frequently. Those funds then enter the general surplus of the owners corporation and, under the broad delegation to the committee (or as otherwise resolved by the owners corporation), may be spent accordingly. If a special levy were to be required, the committee or owners corporation can resolve to raise a levy of an amount up to twice the annual fees before a special resolution is required.

If the works in question are actually an upgrade – and again, this is not well specified or defined in the Act when applied in practical terms, then per s53(1), a special resolution is required for the works approval and any levying required.

Circling back – it’s all in the details. Without knowing the works in question, this is about as far as we can take things. You may wish to consider seeking legal advice from an experienced strata lawyer to address the question of whether it’s s(4)(b) maintenance and repairs, or s(53) upgrading.

Alex McCormick
SOCM
alex@socm.com.au
P: 03 9495 0005

This post appears in Strata News #762.