VCAT rules that no special resolution is required for levying fees to repair and maintain community-wide features

VCAT rules that no special resolution is required for levying fees to repair and maintain community-wide features

An article by Austin Dou, from our Melbourne office, with assistance from Chris Oster and Michelle Ang.

10th May 2023.

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In the recent VCAT decision of Owners Corporation No 1 PS401009W v Anderton (Owners Corporations) (Anderton),[1] Senior Member Vassie ruled that an owners corporation is not required to obtain a special resolution under section 12 of the Owners Corporations Act 2006 (Vic) (OCA) to levy fees for the purpose of repairing and maintaining community-wide features not situated on common property within the same subdivision.

Background

This decision concerns a debt recovery proceeding for owners corporations fees (Fees) raised to repair and maintain amongst others a large ornamental lake, parks and gardens, and streets and footpaths (Features) within a resort-style gated community comprising 26 plans of subdivisions and 2,549 lots. The Fees were levied by one of the 44 owners corporations that affect various parts of the land.[2] As most of the Features were not located on the common property within the subdivision containing the defendant’s lot, the defendant’s principal defence was that the Fees were invalidly levied as the applicant owners corporation failed to obtain a special resolution pursuant to section 12 of the Owners Corporations Act 2006 (Vic) (OCA) authorising it to repair and maintain the Features.[3] Section 12 of the OCA, provides an avenue for an Owners Corporation, subject to a special resolution being passed, to:

• provide a service to lot owners or occupiers of lots or the public; and
• enter into agreements for the provision of services to lot owners or occupiers of lots.

Reasoning

In making a determination in favour of the owners corporation, Senior Member Vassie followed the tribunal’s previous decision in Sulomar & Ors v Owners Corporation 1 Plan No. PS511693Q[4] (Sulomar), and ruled that such community-wide features are “services … which are … for the benefits of all or some of the land affected by the owners corporation” under section 4(b)(iii) of the OCA because “the sub-section was given a wide meaning so that it covered a benefit which was not necessarily related to the land or to the common property but was community-wide.” This means the repair and maintenance of the Features was within the owners corporation’s function and power under section 6(b) of the OCA, thereby not requiring a special resolution.[5]

Sulomar concerned a proceeding initiated by another lot owner in the same gated community in respect of the same Fees on similar grounds. In that case, Member Moraitis found in favour of the owners corporation on the basis of both sections 4(b)(ii) and 4(b)(iii) of the OCA, however, Senior Member Vassie only adopted the reasoning  in relation to section 4(b)(iii) in Anderton. Relevantly, in respect to section 4(b)(iii) Member Moraitis held that:

“I further consider that the provision of the disputed services falls within the definition of s.4(b)(iii), namely, that the equipment and services are “for the benefit of all or some of the land affected by the owners corporation”. I reject the Applicant’s restrictive construction of “services” as referring to “physical utilities, not to services such as security patrols”. The inclusion of the phrase “or which are otherwise for the benefit of” suggests that the parliament’s underlying intention was to promote a broad and inclusive construction of this provision. The definition of “land affected by an owners corporation” in s.3 of the Act (“the lots the owners of which for the time being of which are members of the owners corporation together with the common property for which the owners corporation is responsible”) (emphasis added) clearly suggests that parliament intended to include services to lots and common property. I find that services such as security patrols are for the benefit of both the common property and individual lots and fall within the ordinary functions of the owners corporation as defined in s.4(b)(iii).” [6] [Emphasis added]

By contrast, a special resolution is required under 12 of the OCA for the owners corporation to provide services that go beyond functions described in section 4 of the OCA.[7] The Senior Member in Anderton opined that the language of section 12 of the OCA is deliberately expressed widely to capture all other services “that have no relation to any particular lot or to common property or do not benefit any particular lot or common property and so are not within any of the functions listed in s 4.”[8]

Application of the Benefit Principle

VCAT further rejected the defendant’s secondary defence that the Fees should have been levied on the basis of benefit principle under section 24 of the OCA (instead of lot liability). In demining the applicability of the benefit principle, the tribunal asked the relevant question of “whether there are lots that benefit more [the defendant’s] lot benefits from the services” and came to the conclusion that:

“The fact that other lots may have greater geographical proximity to the lake, to the recreation facilities, or to the parks and gardens, than [the defendant’s] lot has does not mean that there is any greater benefit that those lots gain. The fact, if it is a fact, that Ms Anderton does not wish to take advantage of those features or facilities does not mean that her lot has any less of a benefit from them.”[9]

Whether owners corporation is “in trade and commerce”

The defendant also made a counterclaim against the OC pursuant to section 45 of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (Australian Consumer Law) in respect to prohibited debt collection practices. In determining this claim, the tribunal had to consider the meaning of “trade and commerce”. The tribunal held in relation to that claim that an attempt by the owners corporation to collect outstanding fees that became statute-barred, despite being “disgraceful”, does not constitute a prohibited debt collection practice as the sending of fee notices and final fee notices by an owners corporation (extending to further demands made by email after the final notice) is “conduct that looks towards fulfilment of statutory obligations” under sections 31 and 32 of the OCA, rather than engaging“ in trade and commerce.”[10]

Conclusion

This case is a good reminder of the difference in the operation of section 4 and section 12 of the OCA. Section 12 of the OCA is related to services provided by an owners corporation to lot owners or occupiers or the public that are generally outside the owners corporation’s functions provided in section 4. The owners corporation is required to pass a special resolution to levy fees for the repair and maintenance of such services.

Whereas repair and maintenance carried out under section 4 of the OCA are within the owners corporation’s function which does not require a special resolution for any fees levied for such purpose. According to VCAT in Anderton, the owners corporation may carry out repair and maintenance for community-wide features that are not necessarily related to the land or to the common property under section 4(b)(iii) of the OCA and levy fees without passing a special resolution under section 12 of the OCA which relates to the provision of services by the OC to members, occupiers that go beyond its functions under s.4b(iii) of the OCA.

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[1] [2023] VCAT 426.

[2] Ibid at [1]-[6].

[3] Ibid at [12].

[4] [2010] VCAT 600.

[5] [2023] VCAT 426 at [27], [40].

[6] Ibid at [32].

[7] [2023] VCAT 426at [36].

[8] Ibid at [43].

[9] Ibid at [48]-[50].

[10] Ibid at [80]-[81].

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