Contributions by Lot Owners to pay Owners Corporation Expenses – Levies based on Unit entitlement - Can Unit entitlements be varied?

27/03/2018

The Owners Corporation raises money to undertaken their obligations which include for example, the maintenance of the common property (namely all property other than the individual Lots).

The Owners Corporation must raise funds as required to enable the Owners Corporation to fund its operations as required.

The Owners Corporation must maintain an Administrative Fund and a Capital Works Fund (previously known as a Sinking fund). The Strata Schemes Management Act 2015 (the 2015 SSM Act) sets out the requirements and purposes of each of the separate funds.

The contributions to the Administrative Fund and Capital Works Fund payable by each Lot owner is determined having regard to the unit entitlement of each of the Lot(s).

Unit entitlement is originally allocated at the time of registration of the Strata Plan.

The relative unit entitlement should be based on the relative values of the various Lots.

Prior to the 2015 SSM Act, pursuant to Strata Schemes Management Act 1996 (the 1996 SSM Act) unit entitlement of each Lot was allocated by the Developer or its Valuer or Surveyor at the time of registration of the Strata Plan.

Under the 2015 SSM Act the unit entitlement must be related to the value of the various lots and must be supported by a valuation by a qualified Valuer.

This is important as the contributions to the Owners Corporation expenses (to the Administrative Fund or Capital Works Fund) are by way of percentage of total unit entitlements held by each Lot.

Further having regard to the introduction of the Strata Schemes Development Act 2015 (the Strata Schemes Development Act) the unit entitlement is critical if there is a collective sale or collective redevelopment under the provision of the Strata Schemes Development Act.  We refer to another article “New Strata laws collective sale or redevelopment of strata schemes – Owners options” relating to the process of collective sales or collective redevelopment.

Under a collective sale or collective redevelopment some dissenting Owners who do not wish their units to be sold are forced to sell and the amount to be received by those (unit) Lot owners will depend upon their unit entitlement (generally). 

Can an Order be made for reallocation of unit entitlements?

In various circumstances the New South Wales Civil and Administrative Tribunal (NCAT) or an appropriate Court can make an order making a reallocation of the unit entitlements as between the various lot Owners.

The 2015 SSM Act sets out the basis of the matters that are relevant to such an Application.  They are similar to the considerations under the 1996 SSM Act.

The Tribunal is to consider whether the Unit entitlement:

(a)      Was unreasonable when the Strata Plan was registered;

(b)      Became unreasonable because of a change in the permitted land use being a change (for example because of a re-zoning) in the ways in which the whole or only part of the parcel could lawfully be used.

It seems fairly simple to deal with the issues as to the relative values at the time of registration.  However the more difficult question is whether the reallocation became unreasonable because of the changes in permitted use referred to above.

There are some cases which deal with the first aspect only, namely whether the original allocations were unreasonable.  In some of those cases there has been a reallocation of unit entitlements having regard to the relative values of the Lots at the time of the registration of the strata.

It is more problematic in relation to the second basis for a reallocation, namely whether there was a change to permitted use and the effect on the relative value of lots within the Strata Scheme resulting therefrom.

The question for consideration is changes to the permitted use of the whole or any part of the parcel rather than for example, the use of land in the vicinity having an effect on part of some of the lots within a Strata Scheme.  One example is the rezoning of land between the subject Strata Units and the view they enjoyed at the time of registration of the Strata Plan.

A Lot owner, Owners Corporation, the Lessor in the case of a Leasehold Strata Scheme, the Local Council or other statutory body may make an Application for an Order varying the allocation of unit entitlements.

There are certain procedural aspects in relation to the Application for reallocation of unit entitlement including the requirement for a valuation at the relevant time of registration or immediately after the change in permitted land use or each of the lots to which the Application relates.

There are issues relating to the change of the unit entitlement which may become a critical issue in a collective sale where the fund of money paid to the Owners Corporation is to be divided in accordance with the unit entitlement.  If you believe that you may suffer a significant detriment having regard to your unit entitlement and the new possibilities having regard to the Strata Scheme Development Act, Watson & Watson could assist you in providing various options available to enable you to make a considered decision as to what you may do either at this stage or in the event of a collective sale or collective redevelopment or other event which gives rise to what you believe is “unfair” having regard to your unit entitlements.

We are aware of numerous circumstances in which these matters will arise and have advised many Owners in relation to their options regarding collective sales.  We have on behalf of various Owners negotiated additional payments in relation to collective sales which they would not have otherwise achieved.

Please telephone Richard Watson or his Personal Assistant Shereen Da Gloria if you have any queries or issues concerning your contributions to the Administrative Fund and Capital Works Funds of your Owners Corporation or the costs of the Owners Corporation in managing the Administrative Fund or Capital Works Fund.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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