VIC: Owners Corporations Case law update- Benefit Principle

This article is about a VCAT case which clarified how the “benefit principle” should be applied to extraordinary expenditures, requiring costs to be levied proportionally based on which lots benefit most from the works.

So what is the case?

The case is Bradley Scott Schembri Furniture Finishes Pty Ltd v Owners Corporation No. PS334220X (Owners Corporations) [2025] VCAT 298

What is it about?

The proceeding relates to a 4 lot subdivision in Heidelberg West. The Applicant owns one lot and the other three lots are owned directly or indirectly the Hart family.

The dispute arose in respect to several resolutions purportedly passed at an AGM where the Applicant alleged that the owners corporation (OC) had failed to consider the application of the benefit principle to the works. The Applicant alleged that some of the works should have the benefit principle applied.

So what is the benefit principle?

Section 24 (2A) of the Owners Corporations Act 2006 requires “that Fees and charges for extraordinary items of expenditure relating to repairs, maintenance or other works that are 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.”

The leading case on the benefit principle is Owners Corporation PS407621Y v Grundl [2017] VCAT 1550. Senior Member Vassie set out the manner in which an OC may set special fees in the context of the benefit principle:

“In my view, in the light of the Mashane decision on appeal and of s. 24 as it now is, the law requires an Owners Corporation to act as follows when it sets special fees to cover extraordinary items of expenditure relating to repairs, maintenance or other works.

1. It must first turn its collective mind to the question of whether all lots benefit substantially from the works or whether some lots substantially benefit more than others.
2. If, acting in good faith and exercising due care and diligence, as s. 5 of the Act obliges it to do, it decides that all lots substantially benefit, it must set fees in accordance with lot liability. There will be no legal error in the decision, and the Tribunal will not interfere with it on the application of an aggrieved lot owner, unless the decision was one which no members of an Owners Corporation, acting honestly and reasonably, could have made.
3. Failure to turn the collective mind to the question is a legal error. The error is unlikely to lead the Tribunal to interfere, on the application of an aggrieved lot owner, with a decision to set fees in accordance with lot liability if in reality all the lots benefit substantially from the works. Otherwise the legal error exposes the Owners Corporation to the risk that the Tribunal will declare the resolution invalid.
4. If the Owners Corporation decides that the works are substantially for the benefit of some, but not all, of the lots, it must set fees not in accordance with lot liability but in accordance with the benefit principle, so that the owner of the lot that benefits more pays more.
5. The Owners Corporation must decide the extent to which the various lots benefit and apportion the fees accordingly. In making the decision it must act in good faith and with due care and diligence. If it does, there will be no legal error in the decision, and the Tribunal will not interfere with it on the application of an aggrieved lot owner, unless the decision was outside the range of reasonableness so that it was one which no members of an Owners Corporation, acting honestly and reasonably, could have made, or unless there has been some other legal error.
6. However, if the lot owners cannot decide which principle to adopt or cannot decide upon the proper apportionment, and ask the Tribunal to decide, the Tribunal may do so.
7. Except in a case of urgency, there must be a special resolution for levying the amount of the extraordinary expenditure if it is more than twice the amount of the current annual fees.”

So what did the Tribunal need to decide?

The Tribunal found that in respect to some of the works, the benefit principle ought to have been considered and the failure to consider it meant the OC fell into legal error and the resolution made at the meeting should be declared void and of no effect.

The Tribunal then considered the application of the benefit principle for each of the works. In particular:

In respect to gates that were mainly used by two of the 4 lots, the Tribunal found that the benefit principle should have been applied to the tune of 70% to 2 lots and 30% to the other two lots.

In respect to concreting at the rear of one of the units (in common property), the Tribunal found that one of the lots substantially benefited from the works. The Tribunal accepted that there is benefit to the other lots, namely, the reduced risk of injury to occupiers and visitors to the complex, in the improved visual appeal and the OC complying with its statutory obligation to maintain common property. The Tribunal apportioned 60% of the costs of the concreting to one unit and 40% to the other 3 units.

In respect to line marking the Tribunal considered that the works were for the benefit of all lots and therefore, payment by each of the lot owners equally was appropriate.

The Applicant also alleged that there was a fraud on the minority in passing the resolutions, but that claim was rejected by the Tribunal.

Summing up

The Applicant was partially successful in that the Tribunal found that the benefit principle applied to two of the 3 categories of works. However, the total amount paid by the Applicant for the works was $4,000 and the Tribunal, through the application of the benefit principle reduced that liability to $2,330.91. The Tribunal ordered that he be refunded $1,669.09.

Both parties had barristers appear for them and the hearing went for two days. The Applicant was given leave to make a costs application but obtaining an order for costs in VCAT is not guaranteed and in fact, the presumption is that each party bear their own costs.

This case represents a timely reminder that owners corporations need to act prudently. When faced when a lot owner who is challenging a resolution, the owners corporation should consider whether or not there is scope for a compromise in circumstances where legal costs would have outweighed the value of this case. In this case, the total in dispute was $4,000. The Applicant no doubt was concerned about the $4,000 but also about the next lot of resolutions that would be passed in circumstances where the Applicant was always going to be outvoted by the other lot owners.

Just because you are the majority vote holder does not mean that you can dispense with the requirements of the Owners Corporations Act 2006. In this case, the Tribunal confirmed that the benefit principle must be considered and applied if appropriate. Otherwise, the Tribunal will intervene.

For owners corporations, you should document meetings accurately and if the benefit principle was discussed and considered and discounted, then say so in the minutes of meeting so there is a record for the Tribunal’s benefit if the matter is challenged.

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

This post appears in Strata News #747.

This article has been republished with permission from the author and first appeared on the Tisher Liner FC Law website.

Have a question or something to add to the article? Leave a comment below.

Read next:

• VIC: Q&A What is the benefit principle for an owners corporation?
• VIC: Owners corporations case law update – stop that noise!
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