VCAT Guidance – Benefit Principle when raising Special Levies

VCAT Guidance in support of Benefit Principle term used under Section 49 of the Owners Corporation Act 2006 when raising Special Levies.

There are two available methods of raising Special Levies under Section 24 of the Owners Corporation Act 2006. First is based on Lot liability and the second is based on the lot owner of the lot that benefits more pays more (‘the Benefit Principle”).  It is important for managers to refer Owners or the Committee representing the Owners Corporation to the detailed reasons in the VCAT decision made at VCAT Case Reference: Owners Corporation PS407621Y v Grundl (Owners Corporations) (2017) VCAT 1150 referred to as (“the Grundl Assessment”) at paragraph 16 which states:

“[16] .. 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.”

(“the Grundl Assessment”)

Managers are advised to adopt the above passage in Grundl’s case when establishing the process to be undertaken by an Owners Corporation to apply the benefit principle and to clarify the circumstances in which the Owners Corporation resolved such decision.