Entitlement and liability
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The statutory basis for the allocation of lot entitlement and lot liability are sections 27F and 33 of the Subdivision Act 1988 (Vic) (‘Subdivision Act’).
The entitlement and liability of each owner is expressed in the plan of subdivision. Lot entitlement ultimately determines the voting rights of each owner and the lot owner’s share of any income the owners corporation may receive.
A new section 27F(4) of the Subdivision Act lists the criteria for the creation or alteration of lot entitlement and lot liability (previously, only the alteration of lot entitlement or lot liability was considered). The new criteria are:
- Lot entitlement must be allocated on the basis of the market value of each lot and what proportion that value is of the total value of all the lots.
- Lot liability must be allocated equally between the lots unless there is a substantial difference in size between the lots, or there are differences that have a bearing on the consumption or use of common utilities or the number of bedrooms in the lots.
A licensed surveyor must be engaged to set the initial allocations. The new criteria should curb developers from implementing unfair schedules.
The alteration of lot entitlement and lot liability requires an unanimous resolution that can be difficult to obtain. In the absence of an unanimous resolution, an application can be made to the Victorian Civil and Administrative Tribunal (VCAT) if owners wish to challenge an allocation.
The requirements for an exemption from the obligation to have a unanimous resolution are set out in section 34D of the Subdivision Act. This section covers issues such as when it is impractical to obtain a member’s vote, or when more than 50 per cent of the voting rights support the ballot and the purpose is likely to bring economic or social benefits to the subdivision as a whole that are greater than any disadvantage to the members who did not consent. Note that the same exercise must be undertaken for each owners corporation where there are multiple owners corporations affecting a lot.
The owners for the time being, and any purchaser in possession of a lot, are liable to pay any outstanding fees, charges, contributions or amounts owing to the owners corporation in respect of that lot (s 28(1)). For this reason, it is important to ensure that any arrears are adjusted and paid at settlement or the new owner will become responsible.
Under section 28(2) of the Owners Corporations Act 2006 (Vic) (‘OC Act’), a member of an owners corporation is not liable to pay or contribute to funds of an owners corporation exceeding the member’s lot liability. The section prevents the making of any resolution or rule that imposes a fine or administration fee or charge to an individual lot owner. It does not apply in circumstances where repairs, maintenance or other works are undertaken wholly or substantially for the benefit of some, or one, but not all of the lots affected by the owners corporation (s 24(2A) OC Act) and that may include special levies for extraordinary items of expenditure.
If an owners corporation incurs additional costs arising from the particular use of a lot by the lot owner, it may levy additional annual fees on that lot owner (s 24(2B) OC Act). For example, an increased insurance premium due to the risks associated with short-stay residential accommodation.
