VIC: VCAT Clarifies Cost Allocation Between Limited and Unlimited Owners Corporations

This article is about VCAT’s clarification on fair cost allocation between limited and unlimited owners corporations in Victoria.

In large developments with multiple owners corporations (OCs), disputes can arise over who pays for what. When costs incurred by limited OCs are shifted onto unlimited OCs, disputes can arise—especially when the allocation appears unfair, discriminatory, or oppressive. Recent rulings by the Victorian Civil and Administrative Tribunal (VCAT) have clarified that such practices may breach section 167(1)(d) of the Owners Corporations Act 2006 (Vic), prompting a closer look at how costs should be fairly and lawfully apportioned.

How the Law Defines OC Responsibilities and Cost Allocation

• Functions of OCs: Under Section 4 of the OCA, an OC is tasked with managing and administering the common property. This responsibility extends to repairing and maintaining common property, including chattels, fixtures, fittings, and services that are either part of the common property or contribute to its enjoyment.
• Limited vs Unlimited OCs: The Subdivision Act 1988 (Vic) distinguishes between limited and unlimited Owners Corporations (OCs) in sections 3(1), 27B and 27C. A limited OC is established to manage specific areas of common property that are used exclusively by its members. For example, if an area is marked “Common Property 2” and governed by OC 2, then OC 2 must bear the costs of its repair and upkeep. In contrast, an unlimited OC is established to manage the designated areas of common property under its control, except where those areas fall within the responsibility of a limited OC.
• No fixed rule for cost sharing: The legislation does not spell out how administrative costs must be divided between OCs. OCs must therefore apply common sense, fairness and due diligence.

As Member Rowland put in the recent case of Ward v Owners Corporation PS723358X-1 [2025] VCAT 823 (Ward) at [24] and [25]:

“…owners corporations must use common sense and practicality in dividing administrative and service costs between owners corporations depending on the unique distribution of lot liability between all lots across all owners corporations. In carrying out this function, owners corporations must act honestly and in good faith and exercise due care diligence as required by section 5 of the Owners Corporations Act 2006 (Vic).”

Case Spotlight – Ward v Owners Corporation PS723358X-1 [2025] VCAT 823

Facts

In Ward, the case concerned:

• A subdivision with an unlimited OC (OC 1) and 4 limited OCs. The 4 limited OCs governed 456 apartments across 10 apartment towers. The unlimited OC governed the apartment towers and townhouse lots.
• The applicants (townhouse owners) contended that costs have been unfairly allocated to OC 1 when the 4 limited OCs are receiving a benefit for which they are not making a proper contribution.

Disputed costs

Member Rowland undertook the exercise of determining whether specific costs (such as insurance, security, facility management fees, owners corporation management services, water and fire system services) should be shared through the unlimited OC so that all lots share equally (subject to their lot liability) or whether they should be shared through the limited OCs so that costs are shared only among the affected lot owners.

Findings

The Tribunal found that the unlimited OC had not acted in good faith and diligence because:

• OC 1 allocated the entire cost of a facility management contract and owners corporation management services to the unlimited OC which unfairly discriminated against townhouse owners.
• The facility management contract did not extend to townhouse lots.
• Townhouse owners benefited less from the owners corporation management services because there was work carried out purely for the limited OCs including preparing budgets, annual statements, arranging repairs, maintenance and services for each of the limited OCs.

Member Rowland found that this was unfairly discriminatory and made orders that:

• The facility management and owners corporation management companies were to estimate the time spent on each of the OCs and apportion the costs accordingly.
• Misallocations to be corrected.

Although Member Rowland acknowledged the difficulty and cost in precisely apportioning these costs, she said that a reasonable estimate ought to be made.

Earlier VCAT Decisions on Cost Allocation

Member Rowland’s approach is consistent with the previous decisions of Member Dea in Sukeda v Owners Corporation 2 Plan No 529462 [2016] VCAT 533 (Sukeda) and Judge Millane in Owners Corporation No. 5 PS326559B v Owners Corporation No. 1 PS326559B [2018] VCAT 765 (OC 5).

Sukeda

In this case:

• Similar to Ward, OC 2 was an apartment building among townhouse lots that were only affected by the unlimited OC.
• A townhouse owner challenged the limited OC (OC 2)’s charges to the unlimited OC for caretaking services for waste management, replacement of lights in the apartment building, internal cleaning, window cleaning, fire protection and extinguisher services, and plumbing services.
• Member Dea held that these were expenses of a limited OC (OC 2) and not the unlimited OC and required that OC 2 refund the unlimited OC for the wrongly allocated expenses.
• OC 2 argued that budgets were validly passed at AGMs and therefore the unlimited OC was stopped from claiming back those funds but this argument was rejected by the Tribunal.

OC 5

In this case:

• Judge Millane found that the limited OC (OC 5) was responsible for the repair and maintenance of a historic chimney as it was designated as common property 5 on the plan of subdivision.
• This is consistent with the current section 27C(3) of the Subdivision Act in that the creation of a limited OC is to manage and administer the limited OC where its members have an exclusive right to use the common property.

Key Takeaways – Practical Lessons

1. Check which OC really benefits
• Costs should follow the OC that benefits from the service.
• Cost allocation should not automatically be applied to the unlimited OC.

2. Use reasonable estimates
• If costs are shared across multiple OCs (such as owners corporation management services), service providers should provide a reasonable estimate of the time spent or resources used for each OC.

3. Document decisions
• Keep records of resolutions, invoices and apportionment methods/calculations.
• Passing a budget or blanket resolution at an AGM will not protect an OC against challenge.

4. Apply consistency
• Costs such as insurance that benefit all lots can be paid by the unlimited OC.
• However, services that are clearly confined to certain common property should be allocated costs to the relevant OC.

Conclusion

VCAT’s decisions reinforce that cost apportionment between limited and unlimited Owners Corporations must reflect actual benefit and use. Blanket charges to unlimited OCs risk breaching statutory duties and may be deemed oppressive or discriminatory under section 167 of the OCA. OCs should adopt transparent, fair and well-documented methods for allocating costs—guided by common sense, legal principles and practical estimates. OCs are encouraged to review their arrangements now to avoid potential disputes later.

Leila Idris
Grace Lawyers
E: Leila.idris@gracelawyers.com.au

Katrina Lay
Grace Lawyers
E: enquiries@gracelawyers.com.au

This post appears in Strata News #771.

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This article has been republished with permission from the author and first appeared on the Grace Lawyers website.

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