15/05/2019 at 6:23 pm #37658
Hi, I know this topic has been discussed before, but I’d appreciate hearing from others on their experience of calculating fees for exclusive use. By way of background, I own 1 of 9 units in a 1930s apartment block. The subject of attic conversions, exclusive use gardens, converting voids to storage or living spaces etc has been discussed for quite some time without much urgency. However now the building requires major maintenance and repairs, and granting people exclusive use over common property and using the resulting fees to fund a large proportion of the works is gaining majority support.
However, some owners wish to apply a common formula for calculating the fee payable by each owner, and this is where we’ve hit a speedbump. I am aware of the formula from case law mentioned elsewhere (simply put – increase in value less increase in costs to realise) but strictly applied it creates a large fee disparity that not everyone is comfortable with. To explain more clearly, by way of example:
If owner A on the top floor expands into their attic space creating 2 rooms at a cost of $180,000 and the increased in value is estimated at $200,ooo the fee would be $20,000.
If owner B on the ground floor realises the use of some garden space at a cost of $10,000 (for access door, fence, paving etc) but the increase in value is calculated at $120,000 by a valuer, they would be asked to pay $110,000.
This disparity seems unreasonable, and of course, owner B doesn’t want to pay that much (and neither would I!). You could argue owner A gains more amenity from the internal space than owner B gains from external space, but at less than a fifth of the cost.
There is also the issue of what constitutes a ‘reasonable’ cost of construction (as this could be manipulated to reduce the fee to almost nothing). If other owners insist on a formal valuation, is that commonly done by the owners corporation or the individual? Again, subject to some manipulation.
Has anyone has a similar experience and successfully resolved it? Personally I (as a top floor owner) am happy to avoid this headache, let market forces prevail and for each of us to negotiate are own ‘fair’ deal, but its proving hard for some to get their heads around (understandably).
Any thoughts or experiences, greatly appreciated.15/05/2019 at 6:40 pm #37664
The formula you are referring to was established in High Court ruling so it is pretty much the law. Nobody can force you to go down that route but it leaves you (collectively) open to a legal challenge if a current or future owners feels they have been dudded.
I thing the key word in all this is “agreed”. The physical costs of the renovation will be whatever they will be, as will the costs of architects, lawyers and surveyors. Now, what you have to get to is a “reasonable” figure for the increased value of the property.
To be fair, the renovators are benefitting in a way that will, over time, increase in value so they shouldn’t be looking for a free ride on this. On the other hand, it should be worth their while.
So how about including in the calculations something like an “agreed” fee for disruption of their lives. Something that at least 75 per cent of owners can agree on, so that you can move on and everybody in the building can benefit.
And on that note, don’t forget to look at redistributing the unit entitlements so the the improved units are paying more in levies.16/05/2019 at 10:31 am #37669
Thanks for the feedback Jimmy T – do you know the name of the case that established that valuation principle by chance, so I can look it up?
No one is looking for a ‘free’ ride (at least none of the people proposing a major renovation) but it is in the interests of everyone that we move forward, otherwise we are all going to feel the sting of $300,000 in common area building repairs that deliver effectively no increase in quality of living to anyone (its all structural maintenance).
Interesting that you say that about levies, we have sought a couple of legal opinions and their view was that a levy increase would only apply if there was a strata subdivision. Of course, that is another topic for mutual agreement.16/05/2019 at 1:51 pm #37672
Your legal opinion isn’t quite right – a strata levy increase might be imposed if there was a subdivision but a redistribution of unit entitlements can be agreed upon at any time, subject to subsequent orders at NCAT, which is made much easier if all parties are in agreement (and, yes, believe it or not, that can happen in apartment blocks). Have a look at section 236 of the Act.
Re the High Court ruling, I can’t lay my hands on it right now but it’s out there (and may even be somewhere in here) if anyone cares to look for it.16/05/2019 at 2:47 pm #37673
Thanks again. It might be this ruling in the Supreme Court perhaps…. Immer vs Houghton and Ors17/05/2019 at 1:14 am #37676
That’s the one. Did it go to the Court of Appeal?17/05/2019 at 12:42 pm #37678
Not that I could find when searching the high court database. There was a case involving a balcony that did, dealing more with the definition of ‘unreasonable’ – perhaps that is the one you were thinking of? It’s both alarming and amusing how far some people will take these matters….