Differential levies: Can you? Or can’t you?

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Suppose your owners corporation wants to raise a special levy for the installation of IT infrastructure for the building. No issue there, raising a special levy and passing a simple resolution of the owners corporation at general meeting under section 83 of the Strata Schemes Management Act 2015(the Act) would suffice together with a resolution to either repair the existing infrastructure or a special resolution to add to or alter the existing common property.

The problem?

The scheme wanted to make the levy payable in equal instalments for each lot. This is often called a “differential levy”.

The situation in NSW

Section 83(2) of the Act requires that contributions be levied in accordance with unit entitlements. In The Owners Strata Plan No. 60919 v Consumer Trader and Tenancy Tribunal & Ors [2009] NSWSC 1158, a case concerning a by-law requiring some, but not all, lot owners to pay additional contributions for promotional levies, His Honour Justice Patten held that the by-law was ultra vires. This meant that the owners corporation had no power to make the by-law and no power to levy contributions other than in accordance with section 78 of the Act (note this was the old Act’s version of the current Act’s section 83). The resolutions passing the levy contributions in the by-law therefore had no effect.

Slightly confusing the issue, in a decision involving the same owners corporation, His Honour Justice White in Italian Forum Limited v Owners – Strata Plan 60919 [2012] NSWSC 895, while not deciding the question of whether or not differential levies are permitted, left the door open to an owners corporation passing a by-law that would allow differential levies. Justice White’s decision was obiter dicta however meaning that it was not the key part of the decision and is not binding.

In this situation, unless the owners corporation has an extremely hearty appetite for risk and deep pockets to fund any challenges to any such special levies and a desire to try to establish a new legal precedent, the owners corporation should levy the contributions in accordance with unit entitlements.

A potential alternative

If the new infrastructure would only benefit certain lot owners an option may be to pass a special resolution for a new common property rights by-law giving those lots that obtain the benefit of the new infrastructure the exclusive use of the infrastructure and requiring those lot owner to compensate the owners corporation on an annual basis for their exclusive use right. The by-law could set the level of compensation at a lump sum or state that it is the equivalent of a certain number of unit entitlements allowing the amount to fluctuate over time. This would of course, require the consent of the relevant lot owners. While not a differential levy, it is one way to extract payment from one or more (but not all) lot owners.

An alternative is to consider if your scheme has the services model by-law which enables the owners corporation to enter into agreements to provide amenities or services to lot owners on terms. If it does, and the proposed “contribution” is for an amenity or service that falls within the terms of model by-law, then it could be characterised as a charge for a service being provided rather than as a contribution being raised by the owners corporation. In which case, the charge is based on the service provided rather than the lot’s unit entitlements.

This blog is in general terms and is not intended to give legal advice, we recommend that you seek specific advice for your circumstances.

One response to “Differential levies: Can you? Or can’t you?

  1. Pingback: NSW: Differential Levies: Can You? Or Can't You?·

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