Important VCAT Case Update: The Grundl Assessment

An important recent VCAT decision provides Victorian Owners Corporations, Committees, and Managers about how to choose the appropriate method of raising a Special Levy. The power to raise a Special Levy under section 24 of the Owners Corporations Act 2006 is a powerful one. Special levies of up to twice the amount of an Owners Corporation’s current annual fees can be raised by ordinary resolution. Special levies higher than that can be raised by special resolution. The two available methods of raising a special levy under section 24 of the Owners Corporations Act 2006 are:

1. On the basis of lot liability; or
2. On the basis that the lot owner of the lot that benefits more pays more (“the Benefit Principle”).

Due to the broad industry relevance of the detailed reasons in the Grundl decision and for the convenience of our subscribers, we repeat in full paragraph [16] of the reasons of the VCAT Senior Member in the Grundl decision (“the Grundl Assessment”) below:

“…[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.

• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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”)

It remains to be seen on a case by case basis how Owners Corporations and their Committees will apply the Grundl Assessment when raising Special Levies and what will be considered ‘within’ and ‘outside of’ the “range of reasonableness”.

VCAT Case Reference: Owners Corporation PS407621Y v Grundl (Owners Corporations) [2017] VCAT 1550 (as at the date of this Blog, the Grundl decision was within the appeal period time frame).

Tisher Liner FC Law has a dedicated Owners Corporation legal division. If your Owners Corporation would like clear and practical legal advice about a particular issue, please do not hesitate to contact us on (03) 8600 9370 to become a valued client of Tisher Liner FC Law.