I’m Not Paying For That… I Don’t Even Have A Balcony!

I’m Not Paying For That… I Don’t Even Have A Balcony!

It is not uncommon for us to have our clients seek our advice in relation to who must pay for repairs, maintenance or other works to common property. This is especially the case where owners insist that they should not have to contribute on the basis that they receive no benefit.

The General Proposition and the Exception

The general proposition at law is that fees must be levied based on lot liability. However, sections 24(2A), 28 and 49 of the Owners Corporations Act (2006) (“the Act”) provide an exception to the general proposition. These sections require that the costs (where no allowance has been made in the annual budget or maintenance plan) of repairs, maintenance or other works undertaken wholly or substantially for the benefit of one or some of the Members of the Owners Corporation are to be apportioned on the basis that the Lot owner that benefits more pays more. This is known as “the Benefit Principle”.

The Benefit Principle – Mashane

The Benefit Principle has been well established in the decisions of the VCAT. The most well known of the VCAT decisions is that of Mashane Pty Ltd vs Owners Corporation RN328577 [2013] VCAT 118 (“Mashane”). In Mashane, one of the Lot owners applied to VCAT to seek orders that it not be required to contribute anything towards the costs of the rectification works to balconies on the basis that it received no benefit from them (that lot owner did not have a balcony).

It was determined by Member Buchanan in Mashane that it was ultimately up to the Owners Corporation to determine the fairest apportionment of the costs. In deciding that the Lot owners with balconies did receive a benefit from the rectification works, Member Buchanan further noted at paragraph 51 that, “The benefits which the applicant would derive were numerous: there was less chance that personal injury claims would be brought against the owners corporation; there was the peace of mind which the applicant’s shareholders and officers would enjoy, knowing that the apartment building was now safer for its occupants and visitors; and there was the fact that the appearance of the building had been improved – all the balustrades had been prepared and painted.”

Having regard to Member Buchanan’s comments at paragraph 51 of his decision, it is clear that even through an owner does not have a balcony, that owner may still derive a benefit (albeit in a lesser proportion than other owners who have balconies) from the balcony works and therefore that benefit should be considered when applying the Benefit Principle.

Recent VCAT decisions and the 7 Step Approach

The most recent VCAT decision concerning the Benefit Principle is that Senior Member Vassie in Chambria Pty Ltd v Owners Corporation 347127 [2019] VCAT 1349 “Chambria”. Chambria concerned an application made by a lot owner who sought to challenge the Owners Corporation’s decision to apply the benefit principle to the levying of fees required to carry out works necessary to comply with a building order and notice given to the owners corporation. The Owners Corporation in that matter had engaged a qualified independent expert to assess the equitable application of the benefit principle. That expert determined that the applicant should pay 90% of the total cost of the works. In making his decision that that the Owners Corporation discharged its obligation to act in good faith and with due care and diligence when it made its decision (thereby dismissing the lot owner’s application) Senior Member Vassie set out a 7 step approach to be followed by Owners Corporations when determining special levies for extraordinary expenses relating to repairs, maintenance and other works. This 7 step approach was originally set out by Senior Member Vassie in Owners Corporation PS407621Y v Grundl (Owners Corporations) [2017] VCAT 1550 (28 September 2017) and is summarised below:

  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…
  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…
  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.

Having regard to the Act and the various VCAT decisions, it is unlikely that the Tribunal will interfere with a decision made by the Owners Corporation regarding the levying of extraordinary fees so long as the Owners Corporation has turned its collective mind to the question of whether the benefit principle applies and if so, to what extent it will make an apportionment.

Based on the decision of Member Buchanan in Mashane, it is clear that there are benefits to owners that may not be so obvious and therefore it is likely that there will be some benefit. Accordingly, when faced with an owner who says they will not pay because they have no balcony the response should not simply be an automatic OK.

For assistance on any Owners Corporation or Building Law matters, please contact Emilia Panayiotou at CLP Lawyers on 9042 2070 or at emilia@clplawyers.com.au

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.

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