VIC: Q&A Levies, Lot Allocations and Entitlements

This article is about lot allocations and levies in VIC.

Table of Contents:

• QUESTION: A new non-resident owner states that by taking out their own building insurance, they have fulfilled their requirements for insurance and are not required to pay levies. Is this correct?


• QUESTION: We raised a special levy for gutter repairs three months ago. Work has not commenced, and we have no start date. Where is the special levy money held? Does it earn interest for the owners corporation?


• QUESTION: Our new manager discovered levies had been incorrectly calculated over the past few years. Some owners paid more while others paid less. Should the levies be corrected?


• QUESTION: I’d like to buy a strata lot. How are levies calculated? Do lots that utilise the most common property pay the highest levies?


• QUESTION: Our OC fees are very high. In our large building, the builder holds lots with low liability and entitlement, and uses proxies to help control decision making. Can lot liability be changed to ensure fees are fair for all owners?


• QUESTION: What would the estimated range of costs be for changing lot entitlements in a strata scheme?

Question: A new non-resident owner states that by taking out their own building insurance, they have fulfilled their requirements for insurance and are not required to pay levies. Is this correct?

I have recently taken on the self-management of our strata scheme of 19 semi-detached homes. A new non-resident owner states that by taking out their own building insurance, they have fulfilled their requirements for insurance and are not required to pay levies. Our previous owners corporation manager left us in debt, so the majority of our levy funds will have to go to the insurance renewal.

The new owner is adamant that everyone should take out their own insurance. Is this owner entitled to stop levy payments because he has arranged his own insurance?

Answer: The lot owner is still responsible for contributing to the owners corporation’s expenses, including insurance costs, even if they have their own insurance.

The lot owner cannot refuse or opt out of paying owners corporation fees or the insurance premium cost. Section 28 of the Owners Corporations Act 2006 (“Act”) states that “The owners for the time being and any purchaser in possession of, and any person entitled to receive the rents and profits from, a lot are liable to pay any outstanding fees, charge, contribution or amount owing to the owners corporation in respect of that lot.”

The simple answer to the query is that the lot owner is still responsible for contributing to the owners corporation’s expenses, including insurance costs, even if they have their own insurance. Without a valid unanimous resolution to insure separately (which may not always be feasible and depends on the plan of subdivision), the lot owner is obliged to contribute towards the owners corporation’s insurance policies, regardless of any additional insurance they may hold.

If the issue continues, the owners corporation may consider seeking further legal advice.

Rawand Kaka MBCM Strata Specialists MORDIALLOC E: info@mordialloc.mbcm.com.au P: 03 9583 1555

This post appears in the September 2024 edition of The VIC Strata Magazine.

Question: We raised a special levy for gutter repairs three months ago. Work has not commenced, and we have no start date. Where is the special levy money held? Does it earn interest for the owners corporation?

Answer: Levies are collected from the owners and should be held in a bank account in the name of the owners corporation. This is operated on your behalf by the manager/management company.

You have two main questions. While related, I’ll address them separately.

The first, why hasn’t the work commenced, given the levy was raised three months ago? Several reasons can delay work, including:

• Not all the owners have paid their levies – it is not appropriate for the owners corporation to engage a contractor prior to having the funds available to pay the bill. Funds should be on hand prior to engaging a contractor so you can be confident that payment can be made in full at the conclusion of the work.


• The contractor may not have availability to do the work – since the pandemic, there has been a reduction in the number of contractors available (many businesses closed), so those who remain are often extremely busy. Waiting times have been pushed out and projects that could often commence in 1-2 weeks, are now 4-6 weeks away.


• Issues have arisen with the work or scope – sometimes, after everything has been agreed and levies raised, new information comes to light, and a delay is needed to ensure that the owners corporation achieves what it set out to do. Any number of issues can arise leading up to the work, and those need to be covered off before commencement.

Although delays are frustrating, ensuring everything is in place before you proceed can be the difference between a project running smoothly or encountering issues throughout. Unforeseen issues can sometimes lead to unexpected costs which you want to avoid.

Regarding the levies, these are collected from the owners and should be held in a bank account in the name of the owners corporation. This is operated on your behalf by the manager/management company.

Your manager’s arrangement with the bank will determine whether interest is earned. Due to the significant number of transactions on an owners corporation account, they generally attract commercial fees. However, your manager usually has an agreement with the bank where the account earns no interest on funds held but pays no transaction fees. Often, one offsets the other over the course of operation, where the amount of transaction fees charged is offset by the interest earned and results in a net outcome. So, running with a no-interest, no-fee type account is best.

On the other hand, when the owners corporation builds significant funds in either the administration or maintenance fund, your manager should offer you a choice to invest those funds to earn interest. This is generally achieved by opening a term deposit for a set period and receiving the interest at maturity. At present, these earn anywhere from 4.5 to 5%, depending on interest rates and banks. For a 3 month term, you can access funds four times a year, and either withdraw or rollover the amount as desired. The owners corporation has a tax obligation for interest earned through this process, but with enough funds invested, it still ends up in front. In an emergency, the term deposit can always be short-termed, and funds accessed often result in a penalty depending on the agreement with the bank.

Discuss the investment options with your manager to see what is available if work is delayed, and if this fits with the timeline for a term deposit.

Joel Chamberlain Horizon Strata Management Group E: joel.chamberlain@horizonstrata.com.au P: 03 9687 7788

This post appears in Strata News #699.

Question: Our new manager discovered levies had been incorrectly calculated over the past few years. Some owners paid more while others paid less. Should the levies be corrected?

Our current strata recently discovered that the previous owners corporation (OC) manager charged incorrect strata levies. Some owners were overcharged beyond their lot liability, and some were not charged their full annual levy.

The owners have accepted that the correct levies should be charged in the future but don’t want to adjust the strata accounts retrospectively, as this goes back a few years. Are incorrect levies contradictory to OC law, where a lot shouldn’t be charged an amount exceeding the lot liability for the annual levies? The lot owners who were undercharged are still current owners.

Answer: The owners corporation has the obligation to prove that fees have been levied correctly.

The Owners Corporations Act 2006 provides at section 23 (3) that annual fees must be levied according to lot liability, save where additional annual fees can be passed on to lot owners if the owners corporation has incurred additional costs arising from the particular use of the lot by the lot owner and an annual fee on the basis of lot liability would not adequately take account of those additional costs.

However, the practice of apportioning annual levies based on an equal share is not lawful in circumstances where the lots do not have identical lot liability.

If the owners corporation has wrongly set levies, there should be a correction, meaning that some lot owners will need to pay more, and others will need to pay less and receive a refund.

Ultimately, the owners corporation has the obligation to prove that fees have been levied correctly.

Phillip Leaman Tisher Liner FC Law E: ocenquiry@tlfc.com.au P: 03 8600 9370

This post appears in Strata News #694.

Question: I’d like to buy a strata lot. How are levies calculated? Do lots that utilise the most common property pay the highest levies?

I am looking a purchasing a lot in a Victorian owners corporation. The report states the lot has the highest liability and highest entitlement.

I’ve never been involved with an owners corporation and assumed the lots that utilised the most common property features would pay higher levies. We don’t need to access the common property to get to the lot. The remaining lots do require the common property to access their properties. Why are this lot’s levies so high?

The owners corporation certificate states:

“The current annual fees for the lot are $………. administration fees only and are for the period 1/10/22- 30/09/23, payable in quarterly instalments.”

What are administration fees? Do the lot’s levies contribute to the common area upkeep, maintenance and insurance or not?

Answer: The basis of the liability and entitlement figures may relate to lot market value, square footage of the lot or in a just and fair manner. They may also relate to the amount of common property services for that lot.

It is important to understand the fundamental facets of owners corporation.

The units of liability and entitlement are set when the plan of subdivision is drafted. They relate to the apportionment of costs (units of liability) and voting rights (units of entitlement).

The basis of these figures may be determined by lot market value, square footage of the lot or in a just and fair manner. They may also relate to the amount of common property services for that lot.

The operating account (where expenses are recorded) is the ‘administration fund’. At each AGM, members approve the administration fund budget.

The budget and units of liability determine the amount of levies a member will pay for the administration fund.

The administration fund budget may include operating costs such as the service of the lift/s, caretaking, essential safety measures, inspections, centralised gas, common power, strata insurance etc.

The amount, frequency, arrears and date paid to are all noted in the section 151 certificate – which must be in the Contract of Sale.

Then there may be a ‘maintenance fund’ with its separate budget and levies. The term ‘maintenance fund’ can sometimes be confusing. It is not for repairs and maintenance but usually more long term capital expenses such as roof replacement, lift replacement etc.

Ingrid Goldenfein OccamStrata E: ingrid.goldenfein@occamStrata.com P: 03 7042 5659

This post appears in the June 2023 edition of The VIC Strata Magazine.

Question: Our OC fees are very high. In our large building, the builder holds lots with low liability and entitlement, and uses proxies to help control decision making. Can lot liability be changed to ensure fees are fair for all owners?

Our OC fees are very high for our Victorian apartment. After reviewing the plan of subdivision, we’ve discovered:

• 38% of the 290 lots have liability and entitlement of 1 or 2.


• 10% of the lots have a low liability and entitlement, even if their area is comparable to other lots with double entitlement and liability.


• The company that built our building seems to own the lots with the low liability and entitlements.


• At the AGM, employees hold proxies for the low liability and entitlement lots. Unless many owners attend the AGM, this company will use their uneven advantage to push through decisions benefiting them.

Can the owners corporation lot liability be changed to ensure each lot liability is fair for all owners?

Answer: Applications to change lot liabilities can be difficult and time consuming. It is important to obtain legal advice on the specific circumstances.

Lot liabilities can only be changed through a unanimous resolution of the lot owners or pursuant to an application to the Victorian Civil and Administrative Tribunal under Section 34D of the Subdivision Act.

The application has specified statutory criteria to be reviewed and complied with in order for the Tribunal to have jurisdiction to hear the matter.

Since 1 December 2021, Section 27F of the Subdivision Act provides that lot liability in the plan must be allocated equally between the lots unless there is:

1. a substantial difference in size between the lots (based on the size of the lot and the proportion that size bears to the total size area of 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 (based on number of bedrooms in a lot).

A surveyor would need to make an assessment as to whether there is any issue with the lot liability and if so, the factors in Section 34D would need to be considered.

Applications under Section 34D can be difficult and time consuming. It is important to obtain legal advice on the specific circumstances.

Phillip Leaman Tisher Liner FC Law E: ocenquiry@tlfc.com.au P: 03 8600 9370

This post appears in the June 2023 edition of The VIC Strata Magazine.

Question: What would the estimated range of costs be for changing lot entitlements in a strata scheme?

I have a query relating to the process for changing lot entitlements in a strata scheme. I have read the details relating to the Act as to the various considerations in how lot entitlements could be calculated, the need for consensus (or VCAT) if not.

My query specifically relates to the legal process to re-evaluate and hence the types of costs we might incur in going down this path. I believe all owners will be agreeable but also understand it has to be done legally and registered with the appropriate authorities before any strata fees can be re-calculated.

Do we have to engage a surveyor to come on site and measure up or can they work from amended plans of subdivision etc or can we simply tell a strata lawyer how the entitlements should be split in future (with agreement by all owners) and have that drawn up to accommodate the legal registration process?

What is the estimated range of costs we should anticipate for such a process? We are a strata of 8 townhouses.

Answer: The costs of applying to VCAT will ultimately depend on the time spent. The major factor which will affect that variable is whether the proceeding is undefended or (seriously) defended.

Under s.32(k) of the Subdivision Act 1988 if there is a unanimous resolution of the members, an OC may proceed to create, alter or extinguish lot entitlement or lot liability in any way necessary.

If a unanimous resolution is not sought or obtained:

1. Under s.34D(1)(a) and (2) a member, the OC, an administrator or a person with an interest in the land affected by the OC may apply to VCAT for an order requiring the OC to do any of the things set out in s.32 – including removal of the height limitation – even though there is no unanimous resolution of the OC authorising the action. If the OC is to be the applicant a special resolution is required to authorise the proceeding under s.18(1) of the Owners Corporations Act 2006; and


2. Under s.34D(1)(b) and (3) a member, the OC, an administrator or a person with an interest in the land affected by the OC may apply to VCAT for an order consenting on behalf of a member or group of members of an to the doing by the OC of any of the things set out in s.32. VCAT must be satisfied that satisfied that—


1. the member or group of members cannot vote because the member is or the members are dead, out of Victoria, or cannot be found; or


2. for any other reason it is impracticable to obtain the vote of the member or members; or


3. the member has or members have refused consent to the proposed action and—
   
   1. more than half of the membership of the OC having total lot entitlements of more than half of the total lot entitlements consent to the proposed action; and
   
   
   2. the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the members who did not consent to the action.

The leading case on point is Conroy v Owners Corporation Strata Plan 30438 (Owners Corporations) [2014] VCAT 550 (23 May 2014) in which I acted on behalf of the successful Applicants. The applicants proceeded under s.34D(1)(a) to amend the schedules of entitlement and liability on the basis they were unfair. The application did not proceed under s.34D(1)(b) and no effort was made by the applicants to meet the criteria imposed by subsection (3). An owner who stood to losing lot entitlement and accrue additional lot liability opposed the application on the bases including that subsection (1)(b) took primacy over subsection (1)(a). VCAT, constituted by the President, His Honour Garde J, allowed the application to proceed and it was ultimately decided in favour of the applicants (see Conroy v Owners Corporation SP 30438 (Owners Corporations) [2014] VCAT 1413 (12 November 2014); The Concept Developer Pty Ltd v Conroy & Ors [2015] VSC 464 (14 September 2015)).

The VCAT application may be made by:

• A member (or members) of the OC;


• the OC (however a special resolution may be required); an administrator;


• or a person with an interest in the land affected by the OC (which probably means mortgagees; possibly insurers).

However, the Land Registry will not register the amendment without the consent of all mortgagees of lots in the strata plan. Mortgagees will need to make their duplicate Certificates of Title available. All financiers have different requirements, which may include application fees, valuations and other matters. Mercifully, VCAT may make an exempting order under s.34D(1)(c) and (5) dispensing with the requirement for mortgagees’ consents. That will overcome difficulties you may encounter in mobilising owners to cause their mortgagees to consent to the amendment. VCAT will waive mortgagees consents if it is satisfied that—

1. the person whose consent is required is dead or out of Victoria or cannot be found; or


2. it is otherwise impracticable to obtain the person’s consent; or


3. it is impracticable to serve the person with the notice under section 22(1B) of the Subdivision Act (namely mortgagees, registered lessees, annuitants and caveators).

In Real Estate Victoria Pty Ltd v Owners Corporation No 1 PS332430W [2021] VSC 373 (REV decision) Her Honour Justice Richards declined to follow Conroy. In Conroy, His Honour Justice Garde decided that the application may be brought under s 34D(1)(a) of the Subdivision Act need not be made only under s 34D(1)(b) of the Subdivision Act. However, in REV, Her Honour disagreed and stated as follows:

[59] I have concluded that, in the absence of a unanimous resolution of members, s 34D does not empower the Tribunal to make an order requiring an owners corporation to apply to the Registrar under s 33 to alter lot entitlement or lot liability unless the requirements of s 34D(3) are met. Regretfully, I am unable to agree with Garde J’s analysis of the provision in Conroy. This is largely due to two subsequent decisions of the High Court.

[85] As a result, the Tribunal cannot make an order under s 34D(6) requiring an owners corporation to apply to the Registrar under ss 32 or 33 to alter a plan of subdivision on an application under s 34D(1)(a), if there is not a unanimous resolution of the members, without also making an order consenting on behalf of the members who did not vote in favour of the resolution. In order for the Tribunal to make the latter order, it must be satisfied of the relevant conditions in s 34D(3).

And so, since the REV decision, it is necessary to meet the criteria of s.34D(1)(a) and (b).

The costs of applying to VCAT will ultimately depend on the time spent. The major factor which will affect that variable is whether the proceeding is undefended or (seriously) defended. By “seriously” I mean that the contradictors commit resource to legal representation, engaging experts etc. A precise cost estimate should be requested from your lawyer based on the discrete facts of your case.

Tim Graham Bugden Allen Graham Lawyers E: tim@bagl.com.au P: 03 9086 5832

This post appears in Strata News #554.

Have a question about lot allocation and levies or something to add to the article? Leave a comment below.

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