Help me calculate our Owners' Corp Entitlement and Liability

pumpkinspice on 03/01/2022 - 23:14
Last edited 04/01/2022 - 10:40

TL;DR:
How do benefits such as view (from balcony) and access to common property affect Owners' Corp fees?
I'm trying to recalculate each owner's contributions based on their apartment size, views, and access to/use of common property.

Long version:
How do views from apartments impact the value and owners corp fees that a person might pay?

After 2 years living in an apartment building, I've discovered that the developer has made a bit of a mistake with the Entitlement and Liability values for each apartment.
It seems that the developer of the building has accidentally made their own apartment - and two others of similar size - among the lowest Entitlement and Liability in the building. Even lower than some apartments that are smaller and with less parking spaces (developer and one other owner have 2 parking spaces everyone else has 1).

I've re-calculated the Entitlement and Liability based on the size of each apartment, however I'm not sure how views (the higher the apartment, the better the views) impact the value of apartments and the Entitlement and Liability that each apartment pays.

edit
(tidied above as well as adding below)
With regards to why I describe it as a mistake and an accident. I have it on good authority that property developers are all upstanding people and primarily care about the community at large. Kind of like real life Batmans.

The reason this has come up is we're about to have a large amount of works done to rectify building defects. The cost of which (~$300,000) is distributed as per Liability. It's a small building, so each owner's contribution is considerable.
There will potentially be further costs to address cladding if Cladding Safety Victoria won't pay for it. If we have to pay for that, it will likely be additional hundreds of thousands.

@tplen1 and @RockyRaccoon are correct, I'm in Victoria.

References/resources I've found:
Why I'm trying to work out how views impact Entitlement and Liability:
This Madgwicks Lawyers' post about who pays what.
Under "Factors in determining ‘lot liability’":

Typically the following are examples of factors which are considered when determining each lot’s liability to the OC:

  • The size of each apartment.
  • The amenities it enjoys (such as a view).
  • The value of each lot.

The view each apartment enjoys will ultimately affect the value of that apartment, so it seems reasonable that this should impact the entitlement and liability.

Altering entitlement and liability
The Subdivision Act 1988 under section 33 states that a unanimous resolutions is required, and that alterations must be in accordance with 27F(4).

According to Fitzroy Legal Service, if you can't get a unanimous resolution then you can apply to VCAT to challenge the allocation.

27F(4) paraphrased:

Liability is equal unless:
* lots are substantially different in size
* have different consumption of common utilities/property
* different number of people in each lot
* be based on market value of each lot

Home & Garden

Comments

  • dust on 03/01/2022 - 23:18
    +7

    The developer of this building accidentally made his apartment close to the lowest OC fees

    Doesn't sound like an accident to me. I thought the liability is usually solely calculated based on the size on the title.

    • pumpkinspice on 04/01/2022 - 11:07

      It turns out it's just whatever the developer submits when they form the OC.
      They have to justify how they've came up with those figures, their justification was:
      * "value of each lot"
      * "regard has been had to the amount that is just and equitable"

      I'd imagine that the people processing the paperwork wouldn't really have time to check each application against the plan of subdivision to confirm it's right.

  • chcse on 03/01/2022 - 23:18
    +4

    If they are the developer of the building, I doubt it was an accident.

  • elgrande on 03/01/2022 - 23:18
    +3

    The developer of this building accidentally made his apartment close to the lowest OC fees even though he has one of the largest apartments

    "Accidently"..

  • garetz on 03/01/2022 - 23:32
    +1

    Why do you keep saying mistakenly or calling it an accident ? Looks on purpose to me.

    i've never heard of views ever affecting entitlement for owners corp, as they are subjective and cannot be quantified.
    That would mean the lower levels would pay less and the upper levels more.

    The 1st most important factor for entitlement is usually how many bedrooms, then the square meters in entirety then car spaces, garage having to pay more than open air car spaces.
    If he has 2 spaces vs 1 for everyone else, then he should be paying relatively double for the spaces depending on how its calculated.

    • pumpkinspice on 04/01/2022 - 13:12

      As views impact the value of the property, I'd expect it to also impact your OC fees.
      If you have amazing views of a park/water/etc vs 1st floor and looking at the building opposite.

      • timmypete on 04/01/2022 - 13:22
        +1

        Generally speaking, the distribution of entitlements and liability is supposed to fairly spread the costs of maintaining the building equally across owners, so usually square meterage is a good proxy for how much should be charged per lot.

        A good view in an of itself isn't usually enough to adjust the maintenance costs across the building, or risk profiles, so shouldn't automatically result in a higher entitlement of liability. In some cases a higher liability might be warranted. For example:

        • if use across the lots is unequal (eg. a lot is used as a short stay apartment and causes much more wear and tear on carpets/lifts/other common areas than the regular use by other lots).
        • if one lot benefits exclusively, or more than their fair share from the expenditure of the OC (eg. if higher floors had windows cleaned at OC's expense, one lot benefits from OC electronic vehicle facilities, balconies require OC-funded maintance or inspections)
        • if the OC's insurance costs for everyone, are higher because of the elevated risk that a particular lot creates.

        In some cases this can lead to a discrepancy between liability (how much you pay) and entitlement (how many votes you have) but generally they're linked.

        I think you've got good grounds with the extra car parks to prosecute for a variation, but absent any evidence that the OC's maintenance/insurance liabilities are higher as a result of the balconies, the increased market value (or perceptions of increased value) are probably irrelevant.

  • holdenmg on 04/01/2022 - 07:27
    +1

    Entitlement and liability
    https://fls.org.au/law-handbook/houses-communities-and-the-r…

  • Succulent on 04/01/2022 - 08:13

    I think the proper way is to get the valuator in doing this job, as the new unit entitlement calculation (which drives the cost of levy per unit) need to be accepted by majority of the owners. Changes to unit entitlement can be costly and time consuming as you will also need to lodge them to NCAT to be approved. It may also need to be approved by the majority of the owners/committee depending on how your owner corporation decision making is being set up.

  • timmypete on 04/01/2022 - 08:28
    +7

    I'm assuming OP is based in Victoria - the rules differ from state to state.

    If it is, unfortunately things are really tough. In Victoria, changing units of entitlement requires a unanimous vote of OC members, and experience tells me that the developer (or future owners of the lot, who are probably completely uninvolved in the dodginess that preceded their purchase) are unlikely to vote against their own interest. Unanimous votes are binary, so even opposition from the single, lowest entitlement lot is enough to veto the change.

    It's been a little while since I've looked into this, but from memory the developer or surveyor generally needs to adopt a consistent methodology across the building when setting entitlements & liabilities (eg. Based on on floorspace, or estimated sale value) and to provide this rationale to Land Use Victoria (LUV) at the time of subdivision. You can't mix and match the methodology across lots, and it does look like developer acted deliberately to benefit themselves.

    There might be be legal avenues to pursue to change it if it's in error, but I suspect it's expensive and would involve lawyers from the outset. I'd definitely be checking the details registered with LUV to confirm who filed the plan of subdivision. Definitely complain if it was a private building surveyor - they're supposed to be completely independent of the builder in excercising duties, and this appears to be a flagrant breach.

    Also, from experience, you need to be reasonably cautious around your OC manager. They're appointed by the developer in the first instance and are a very lightly regulated industry. It isn't safe to assume they have your personal interests at heart or a healthy degree of distance from the developer.

    • RockyRaccoon on 04/01/2022 - 09:17
      +2

      Their profile says Melbourne which historically is in Victoria 😀

      Btw - your assessment is very astute - the horse has bolted, as the legal costs to winning this would far outweigh the savings. Chalk up another win for a developer.

      • timmypete on 04/01/2022 - 13:01
        +2

        @RockyRaccoon - I caveated my advice because OP hadn't explicitly stated their location. OzBargain is littered with other posts where the OP asks for advice that is state/territory-specific (but don't list a location or mention the jurisdiction they're in) or folks providing their 2 cents based on the process in irrelevant jurisdictions.

        OP at least had included a city in their location field (not the norm for these requests). From the reference to Owners Corporations (compared with NSW/ACT's stratas, or a pre-2006 Victorian Body Corporates) I had made a best guess, but from experience, it's better to caveat explicitly rather than just assume.

        • RockyRaccoon on 04/01/2022 - 14:04
          +2

          Sorry a little humour, unfortunately not always possible to portray that in words everytime. As you see, I did validate your assessment. All cool 😀 and I agree too many people post here forgetting that we arent capable of getting inside their heads, hence we cant give the best advice.

          Assumption is the nightmare of the internet

          • timmypete on 04/01/2022 - 17:07

            @RockyRaccoon: All good - my humour detector goes offline when uncaffeinated, and my reply to you had a bit of repressed frustration from heaps of other Owners Corp/Strata requests in the past without location info (not an issue in OP's case).

            Happy new year!

    • pumpkinspice on 04/01/2022 - 11:02

      I agree, I think it'll be nearly impossible to get a unanimous vote.

      I'll take it to VCAT if it doesn't get voted in. I'm pretty certain that VCAT will rule in favour of altering the Entitlement and Liability, as the current distribution is laughable.

      I spoke to the surveyor to ask how they came up with the Entitlement and Liability, they said "not much thinking was involved, the developer gave us values for each apartment and that formed the basis of the entitlement and liability"
      They wouldn't send me a copy of the correspondence, they said they think it's confidential between the developer and the surveyor.

      Information I've received from the Department of Environment, Land, Water and Planning shows that the developer stated "value of each lot" and "regard has been had to the amount that is just and equitable"
      Both points are simply untrue.

      • timmypete on 04/01/2022 - 12:54
        +1

        Good luck and hope you can get something worked out. As an FYI, you can go to VCAT on your own steam, but from memory the threshold for an OC itself to instigate legal action is a special resolution (75 per cent of entitlements generally, but there are some complicated interim processes and a waiting period if not all members vote). I'm not across all the mechanics, but sounds like you've done your research.

  • Shazam82 on 04/01/2022 - 09:59
    +2

    I went through this process a few years ago in Vic and it is a clumsy process. First step is you need to raise it at the AGM and get enough votes to pay for a valuer that will right a report that would recalculate entitlements/liabilities.

    Increasing the entitlements was relatively easy and you will not get pushed back as it is based on the value of the lot. The issue I had was that it was difficulty to justify increasing liabilities. You almost need to get the breakdown in OC expenditure and work out how much these is a fair cost to each lot. For example, how much more insurance should a larger lot pay compared to a smaller lot, how do you justify the extra OC fees is the key.

    You will probably get push back and then need to go to VCAT like I did, which is very time consuming and stressful. Once you get VCAT to sign off on it you then need to get the OC to engage a lawyer to change the entitlements/liabilities.

    The end result for me was about $5K in OC legal fees with a lot increasing their fees to about $250 per year. Probably not a fight worth having. You will eventually win as the legislation states that entitlements/liabilities is based on what is fair and reasonable. Work out if the end result if it is worth it. Good luck as you are actually just trying to do what is fair.

    • pumpkinspice on 04/01/2022 - 10:47

      (I've added more information to the post)

      Based on your figure of $5K, it'll be worth it.
      Based on my estimates, I'll save more than that in the upcoming building works. I'll also save over $1K per year on regular OC fees.

      I have at least one other owner on board (we're the most disadvantaged by the current Liability distribution). So legal fees would be shared.

    • pumpkinspice on 03/10/2022 - 13:24

      Hi, I was wondering if you could message me some more info on how you went through this.
      You've got DM turned off, but you should be able to message me.

  • orangetrain on 04/01/2022 - 10:07

    You're stuck with it. Per law, every owner (including developer), has to agree to changes to entitlement/liability.

    • pumpkinspice on 04/01/2022 - 10:48

      It appears that VCAT can overrule if we can't get a unanimous vote.

      • RockyRaccoon on 04/01/2022 - 11:45

        A suggestion, is that instaed of reducing your actual amount, you frame it so they increase the developers, that way the body corporate has more money, far better way to get all but the developers votes for your proposal and a VCAT overrule

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