Proposal for differential OC charging

As part of its review into consumer property law legislation including the Owners Corporation Act, Consumer Affairs Victoria is currently considering a number of different options for reform.

One of the many options on the table that hasn’t had a great deal of publicity is a proposal to allow owner’s corporations to recover costs from a lot owner or group of lot owners arising from their particular use of a lot. Such an approach would be a departure from the current law, which requires that lot owners contribute to the owner’s corporation in shares proportional to their lot liability.

This is known in legal circles as “the Mashane principle” where those lot owners which stand to gain more from a particular expenditure, ought to contribute more.

If adopted, an owner’s corporation would be permitted to make an assessment of how much of its general repair and maintenance costs arise from a particular use of a lot and, if it were possible to assess these costs accurately, it would be permitted to issue a differential levy for the associated costs of repairs, maintenance of replacement directly to the owners of those lots.

For instance, if a particular building had commercial lots on the ground floors, and if those commercial lots used common property facilities such as toilets, stairs, services, waste bins and rubbish rooms, then it would be possible for an owner’s corporation to apportion those items that are exclusively for the benefit of the commercial lot owners and issue a differential levy accordingly (with VCAT to enforce in the event of non-payment).

This would get around the unfair situation where a developer might set the lot liability for ground floor commercial suites at very low rates (while retaining high lot entitlement rates) so that commercial lot owners are subsidised by the residential lot owners.

The proposal from Consumer Affairs has not come out of the blue. In 2013, the Victorian Supreme Court ruled that a lot owner that did not have a balcony was not required to contribute to a special levy to replace and repair common property balconies belonging to other owners.

If adopted, the option put forward by Consumer Affairs would effectively be a codification of the Supreme Court’s decision. Pressure groups such as Strata Community Australia and the We Live Here movement have endorsed the option in their response to the options paper from Consumer Affairs.

It remains to be seen whether Consumer Affairs will adopt and permit the expansion of this principle to allow for differential levies to be issued where the use of a particular lot affects costs such as insurance premiums, or wear and tear on common property items such as elevators or the cost of security contractors and/or CCTV.

If the Mashane principle is to be adopted by the legislature, then care should be taken to ensure the limits of the operation of the principle are clearly spelled out, and the formula for apportioning costs is carefully phrased.

Any ambiguity would lead owner’s corporations and lot owners back to court.

Tom Bacon Principal - Strata Title Lawyers