The Owners Corporation Act 2006 (“the Act”) allows an OC to recover from lot owners the cost of works, repairs and maintenance that “wholly or substantially” benefit some lot owners over others, provided that their contributions are calculated on the basis that “whoever benefits more, pays more”. 

The recent case of Mashane Pty Ltd v Owners Corporation RN328577 [2013] VCAT 118 demonstrates that in certain circumstances, lot owners may be required to contribute to the cost of works that do not necessarily benefit them directly. 

Background: 

This was a case about balconies. The case concerned an application brought by the owner (“the Applicant”) of a unit that was part of a high-rise apartment building. The majority of units in the apartment building had balconies. However, the Applicant’s penthouse unit did not have a balcony. 

It had come to the OC’s attention that: 

1. the balustrading of the balconies were in poor condition and parts of it were at risk of being dislodged; and
2. the balustrading did not comply with building regulation requirements and was designed like a ladder, making it easy for children to climb the horizontal bars. 

The OC passed a special resolution to implement and fund a scheme of works to overcome the issues with the balconies. The cost of the works was very expensive. The works were partly funded by a special levy raised by the OC (50% of which was levied by all lot owners on a lot liability basis, and the other 50% to be levied only by lot owners with balconies). However, the majority of the works was funded by payments from the OC’s maintenance fund. 

Works were carried out to overcome the safety hazards identified by the OC’s contractors. The Applicant brought an action against the OC in VCAT on the basis that the owners of the units without balconies should not be required to contribute to the works, and argued inter alia that: 

1. the Applicant ought not to contribute to the cost of the works because it derived little or no benefit from them, and those who benefited most from the works should pay accordingly;
2. payment for the works should not be made from the maintenance fund because the payment would be made from funds to which the Applicant had contributed, yet it would derive no benefit; and
3. the works were carried out on the respective lot owner’s property (i.e. by attaching metal sheets to the interior of the balcony), and not on common property.

Findings:

Member Buchanan found in favour of the OC, as follows: 

(a)    Was the special levy raised on a “proper basis” (i.e. did the owners of units without balconies derive a benefit)? 

While the Applicant believed it would derive "little or no benefit" from the works, Member Buchanan was of a different view finding that the benefits were numerous, and included: 

• less chance of personal injury claims being brought against the OC;
• peace of mind which the Applicant’s shareholders and officers would enjoy, knowing that the apartment building was safer for its occupants and visitors; and
• the fact that the appearance of the building had been improved.

Furthermore, it was clear that the OC had considered the differential benefit enjoyed by the works, and this was reflected by the apportionment in the special levy (50% of which was levied by all lot owners on a lot liability basis, and the other 50% to be levied by lot owners with balconies). 

(b)   Was the OC entitled to apply funds from the Maintenance Fund to the works?

It was accepted that the works fell outside the scope of the OC's maintenance plan. However, the Act provides that an OC may pay for things not covered by a maintenance plan if it is approved by a special resolution. This was done.

The Applicant relied on sections 28(3) and 49(2) of the Act, which provide that an OC can only recover as a debt the cost of works from lot owners that “wholly or substantially” benefit from the works.

However, it was held that the Act does not prevent the maintenance fund from being used for works which confer a differential benefit. Although the scheme contained in the Act imposes the principle of “who benefits more, pays more”, the principle only applies in relation to the collection of funds, not in relation to how existing funds are spent.

(c)    Were the works carried out on common property?

Both parties relied on the expert evidence of building surveyors. The Applicant’s witness relied on the fact that metal sheets that were attached to the balustrades lay within the respective owner’s lot. The OC’s witness said that the metal sheets lay within common property. However, both experts agreed that the balustrades constituted common property.

It was held that the works were carried out on common property (i.e. the balustrades).

Lessons

When levies are raised for works, maintenance and repairs, the general principle that whoever benefits more, pays more, will apply. The case highlights that a “benefit” may take many different forms. 

The case also makes an important distinction with respect to payment of funds for works, maintenance and repairs by levy and from an OC’s maintenance fund. While funds to implement a maintenance plan and urgent repairs can only be collected in proportion to a lot owner’s lot liability, the way those funds are spent is a different matter entirely.

This article is intended to provide general information only and is not a substitute for legal advice. To obtain legal advice tailored to your situation please contact RKL on (03) 9519 9888.