The Benefit Principle – This Week’s Spotlight on the Owners Corporations Act Amendments
Each week we will examine a key aspect of the changes. We delve into the changes in more detail so Owners Corporations Managers and Committees can be prepared and understand their rights and obligations. This week we are looking at Owners Corporations applying the benefit principle.
Our earlier blog gave a summary of the changes to the Owners Corporations Act 2006 which commence on 1 December 2021 as a result of the passing of The Owners Corporations and Other Acts Amendment Act 2021. It is available on our website.
The Benefit Principle now
The benefit principle applies principally to two sections of the Act.
Firstly, Section 24 of the Owners Corporations Act 2006 provides that an owners corporation may levy special fees and charges designed to cover extraordinary items of expenditure. Fees for extraordinary items of expenditure relating to repairs, maintenance or other works that are undertaken wholly or substantially for the benefit of some or one, but not all, of the lots affected by the owners corporation must be levied on the basis that the lot owner of the lot that benefits more pays more.
Secondly, section 49 of the Owners Corporations Act 2006 provides that an owners corporation may recover as a debt the cost of repairs, maintenance or other works undertaken wholly or substantially for the benefit of one or some, but not all, of the lots affected by the owners corporation from the lot owners.
The amount payable by the lot owners is to be calculated on the basis that the lot owner of the lot that benefits more pays more.
The calculation is based on what is called the “benefit principle”. The benefit principle needs to be carefully reviewed and applied by an Owners Corporation. There is case law setting out how the benefit principle is to be applied and in particular, the Grundl Assessment must be applied. In some cases, legal advice is required to ensure the Owners Corporation is correctly applying the assessment.
The changes to the Benefit Principle
The Grundl Assessment does not change nor does the application under Section 24 and 49. However, prior to 1 December 2021 an Owners Corporation could not apply the benefit principle to annual fees, only those fees attributable under Section 24 and 49. The amendments add to the range of levies that the benefit principle can now apply to. Annual fees can as at 1 December 2021 be charged to lot owners on the benefit principle if:
(a) the owners corporation has incurred additional costs arising from the particular use of the lot by the lot owner; and
(b) an annual fee set on the basis of the lot liability of the lot owner would not adequately take account of those additional costs.
This will give greater flexibility for Owners Corporations where some lot owners may use greater services or costs than other lot owners where there are not already separate limited owners corporations to address the problem.
An example of this is where there is just the one owners corporation and you have some retail space using common property toilets but residential lots that don’t use the toilets. If you don’t have licence agreements in place to deal with the costs, you can levy the retail lot owners the costs of operating the toilets.
These amendments will ensure that lot owners that benefit from a particular cost more pay for the cost.
The Grundl Assessment must still be applied in relation to each separate cost.
Need Advice?
Phillip Leaman, principal of the Owners Corporations practice group of Tisher Liner FC Law and his very experienced team can provide assistance to owners corporations, committees, lot owners and managers in a range of owners corporations legal matters. We have substantial experience advising Owners Corporations on dealing with the application of the benefit principle.
We believe Owners Corporations want to maintain peaceful, functional living environments for owners. Our mission is to provide a fresh perspective on resolving legal disputes and to inspire Owners Corporations to achieve outcomes that preserves the value of assets and restores harmony. We are expert Owners Corporations lawyers.
For advice or assistance, please contact Phillip Leaman on 03 8600 9314 or by email [email protected].
To see earlier spotlights on the amendments check out our website. Our website also has more information on Owners Corporations as well as a range of helpful blogs and podcasts.