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QNA Cost in Lot Entitlements

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—

a.     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
b.     for any other reason it is impracticable to obtain the vote of the member or members; or
c.     the member has or members have refused consent to the proposed action and—

 i. 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
 ii. 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—

a.     the person whose consent is required is dead or out of Victoria or cannot be found; or
b.     it is otherwise impracticable to obtain the person’s consent; or
c.     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

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