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WHO IS LIABLE TO PAY FOR OWNERS
CORPORATION FEES WHEN A LOT HAS BEEN SOLD?

Introduction

Recovery of outstanding owners corporation fees and charges is one of the most common types of matters litigated in the Owners Corporation List at VCAT. For the most part, these proceedings are procedural and relatively straight forward. However, complexities may arise when a property has been sold and questions may be asked as to whether it is the Vendor or the Purchaser who is liable to pay the owners corporation fees.

Owners Corporation No 1 PS 506584A v Sokomoto Pty Ltd & Ors (Civil Claims) [2009] VCAT 764 (4 May 2009) was one such case and raised the issue of whether a lot owner’s duty to pay owners corporation fees extends to a period before the lot owner came into possession of the property.

Background of Case

Sokomoto Pty Ltd (“Sokomoto”) took possession of the property at settlement on 16 September 2007 and shortly after, owners corporation fees for the lot fell due. While Sokomoto was the lot owner at the time the fees fell due, they were not in possession of the lot for the period that the fees related to and as such they did not believe that they should have to pay the entirety of those fees.

Accordingly, Sokomoto joined the Vendor and the Purchaser’s Solicitors to the action. The Vendor was joined as they were in possession at the time the owners corporation fees were accrued, and the solicitors were joined because if it was found that Sokomoto was liable for the fees, then they should be liable for not including that in the usual adjustments at settlement.

The solicitors for the owners corporation submitted that Sokomoto was liable for the owners corporation fees regardless of whether they were in possession of the lot in light of s28(1) of the Owners Corporations Act 2006 (“OC Act”) which provides that:

The owners for the time being and any purchaser in possession of, and any person entitled to receive the rents and profits from, a lot are liable to pay any outstanding fees, charge, contribution or amount owing to the owners corporation in respect of that lot.

Alternatively, the owners corporation submitted that the owners were liable to pay the owners corporation fees pursuant to s29(9) of the Subdivision Act 1988, which is almost identical in its wording of s28(1) of the OC Act which states:

The owners for the time being and any purchaser in possession of, and any person entitled to receive the rents and profit from, each lot are liable to pay any outstanding charge contribution or amount owing to the body corporate in respect of that lot.

Decision

Ultimately the first argument was disregarded by the Tribunal as the OC Act came into effect after the settlement date. Given that s28(1) of the OC Act could not apply retrospectively, it would be unable to apply in this matter.

However, as the Subdivision Act was in force at the settlement date, s29(9) of that Act did apply, and subsequently Sokomoto was found liable for the fees which fell due after settlement, regardless of when they accrued.

At the time of making their decision, the Tribunal stipulated the similarity between s28(1) of the OC Act and s29(9) of the Subdivision Act, as well as the fact that should the settlement date not have been outside the scope of the OC Act, then it would have applied in the same way as the Subdivision Act had been applied.

Conclusion

No decisions were made in respect of the Vendor or the Purchaser’s Solicitors and so the level of liability which could be attributed to them remains unclear. However, this case clearly highlights the importance of obtaining proper advice prior to selling or purchasing any property that is subject to an owners corporation.

Should you have any comments in relation to this article or require assistance with any owners corporation debt recovery matters or lot liability issues, please do not hesitate to contact Jenny Wang or Lindsay Crofton of Berrigan Doube Lawyers on 9600 2577.