Introduction
As a general rule under the Owners Corporation Act, owners contribute OC fees to a common fund or funds based on lot liability. However, some sections of the Act allow for exceptions to this general rule.
Section 24 (2A), 28 and 49 state that, where no allowance has been made in the annual budget or LTMP, the costs of extraordinary repairs undertaken wholly or substantially for the benefit of one or some lots should be apportioned on the basis that “the lot owner that benefits more pays more”.
This is commonly called the “Benefit Principle”.
The Benefit Principle at VCAT
In a case called Mashane (2012), a lot owner sought to use the Benefit Principle to argue that repairs to balconies should be paid for only by owners who had balconies, on the basis that only those with balconies would benefit from their repair.
The VCAT member presiding disagreed, proposing several benefits that would accrue to non-balcony owners: less chance of injury claims, peace of mind regarding safety, improved visual appearance of the building overall.
He conceded there may be relatively more benefit to balcony owners, but stated that it was ultimately up to the OC to decide how to collect the funds necessary, following careful reflection on all the matters involved: “It would be inappropriate for the Tribunal to substitute its judgement for that of an owners corporation which was highly aware of the issue, was fully aware of the facts and had made what appeared from the evidence to be a careful decision.”
In another case called Chambria (2019), a lot owner sought to challenge the application of the Benefit Principle under which it was required by the OC to fund 90% of the costs of a particular repair. In the end, VCAT rejected the application and agreed with the OC’s decision to require this one lot owner to contribute more. In the process, Senior Member Vassie outlined principles OCs should consider when applying the Benefit Principle:
1. [The OC] 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, it decides that all lots substantially benefit, it must set fees in accordance with lot liability…
3. Failure to turn the collective mind to the question is a legal error.
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 … 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…
These recommended principles mean the Ardoch OC committee, with authority delegated from all owners at each AGM, should ‘turn its collective mind to’ whether the Benefit Principle should apply at Ardoch, and if so, under what circumstances.
Major repairs at Ardoch
Since the redevelopment of the estate in the mid 1990s, major repairs to the 14 separate buildings at Ardoch have been paid for collectively. For example, 4 Ardoch and 6 Ardoch have had new roofs installed; 1 Ardoch has been recoated with a special coating consistent with an 1880s building; 10 Ardoch has had a new roof; the multiple sources of cracking to an apartment at 8 Ardoch were investigated and then repaired over a 2 year period.
Successive OC committees have continued this pattern of apportioning the costs of major repairs to owners based on lot liability. The reasons for these decisions have not been formally articulated, but include:
- All lots benefit from an estate that shows continual investment in maintenance and repairs. This underpins the commercial value of lots.
- While older style apartments may require more investment than newer style apartments, the newer style apartments benefit from the heritage value of the estate as a whole.
- If the Benefit Principle were applied, it should be applied consistently across all 14 buildings. To do so after 25 years of not doing so would severely disadvantage some lot owners compared with other lot owners. How would the OC decide how to compensate those lot owners who may have benefitted from application of the Benefit Principle? How would the relative costs be accounted and how would the funds be collected?
- To apply the Benefit Principle from now on would upset some lot owners relative to others, severely disrupting the community spirit of the OC and making maintenance funds collection more difficult.
Application of the Benefit Principle at Ardoch
The Ardoch estate comprises 14 separate buildings and extensive grounds and gardens. At times, major repairs are necessary to one or other of these buildings.
Because all lot owners benefit from continuing investment in the upkeep of all the estate’s assets, it is the policy of the Ardoch Owners Corporation that, as a general rule, the cost of major repairs to individual buildings will be apportioned on the basis of lot liability.
Exceptions to this general rule, where the lot owner who benefits most, pays more, will be considered by the OC on their merits.
Discussed and approved as a formal policy by the OC committee at its meeting on 12 Jan 2022.