Victoria’s strata management industry continues to operate in defiance of clear legal rulings, with companies charging “predatory” owners corporation fees (such as administrative and debt recovery fees) that have been explicitly ruled unlawful by the Victorian Civil and Administrative Tribunal (VCAT).
VCAT has recently highlighted “…a number of questionable practices…” by an Owners Corporation Manager which involve, amongst other things, charging numerous and significant sums for administration charges and legal costs to a lot owner’s account.
The practice has become endemic across the sector, with management companies treating these fees as a lucrative revenue stream despite clear tribunal rulings that such charges have “no tenable basis in fact or law”. The timing is particularly problematic as the State Government prepares to receive its independent review of owners corporation laws, with advocacy groups calling for these predatory practices to be stamped out and owners refunded.
VCAT’s clear legal position on owners corporation fees
The only legitimate way an owners corporation may charge legal fees to a defaulting lot owners account is as follows:
- Where VCAT or a Court has ordered legal costs in a fee recovery proceeding
- Where the Courts have allowed costs in accordance with the scale of costs in enforcement proceedings
- Where the lot owner has agreed to pay legal costs in settlement of a fee recovery or enforcement proceeding.
Apart from these costs, the lot owner is not directly liable to pay the legal costs incurred by the owners corporation in any fee recovery or enforcement application.
The Tribunal’s stance is unambiguous. If owners corporations wish to recover money from lot owners that fall outside of the above listed categories, they cannot charge the lot owner for the money as if it were a levy. Rather, owners corporations need to go through proper recovery proceedings to obtain a monetary order from a Court or Tribunal of competent jurisdiction before asserting a legal entitlement to payment from the lot owner.
Case law on owners corporation fees
In Owners Corporation RP002044 v Finch, Member Rowland considered whether a lot owner was liable to pay an array of manager’s legal cost recovery charges, debt collection charges, and letter of demand charges which had been charged to a lot owner. Member Rowland ordered that those costs be removed from the lot owner’s account and stated that:
There is no power under the Owners Corporation Act 2006, Regulations or Rules which enables an owners corporation to require a lot owner to pay an administrative or legal cost on a user pays basis. There is also no power under the Owners Corporation Act 2006, Regulations or Rules to enable an owners corporation to validly pass a special rule or a resolution requiring a lot owner to pay the owners corporation’s administrative and legal costs of debt collection against that lot owner. The scheme of the Owners Corporations Act 2006 requires all administrative costs to be paid by lot owners in accordance with lot liability.
In Owners Corporation 1 Plan No. PS735439F v Singh, the Tribunal determined that the statutory provisions of Section 165(1)(ca) allows for a discretionary order for “reasonable costs incurred” in recovering unpaid amounts if the Tribunal deems it fair in the circumstances. The term “reasonable” was interpreted to mean costs that are not excessive or disproportionate to the debt recovered; it also includes considerations of whether the incurred costs are appropriate for the recovery effort and align with industry standards.
The evidence submitted in the “Summary of Proofs” was insufficient in some instances to prove that the costs claimed were “reasonable” and “fair”. Evidence such as invoices, sufficiency of descriptions in fee notices, and justification of charges were discussed as necessary requirements.
The Tribunal found that in some cases, recovery-related costs incurred by owners corporations were not adequately supported in their individual claims, particularly final fee notices invoiced directly to lot owners without clear evidence of legal entitlement or adequacy of the underlying contract
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In Owners Corporation 1 Plan No. PS718154U v Wang, The Tribunal concluded that the applicants were entitled to recover interest and unpaid “standard levies” as they had been validly issued in compliance with Section 31 of the Owners Corporations Act 2006. The Tribunal dismissed claims for non-standard levies, including “balances brought forward,” penalty interest, and maintenance fund special levies, as insufficient evidence or non-compliance with statutory requirements existed.
The Tribunal found that Section 165(1)(ca) did not allow for unreasonable or improperly incurred legal and administrative costs to be passed on to the respondent without legitimate grounds. The Tribunal criticised the inclusion of improper and unlawful charges in the final fee notice, holding that this practice caused confusion and could lead to inadvertent overpayments by lot owners, which contravened legal standards.
Why managers keep charging illegal owners corporation fees?
Strata Community Association (Vic), the industry peak body, admits owners corporations “do not currently have lawful power to directly recover administrative or debt-recovery charges” without a tribunal order. Yet it defends the practice, claiming compliant owners unfairly subsidise the extra administration caused by late payers.
Critics reject this argument. The founder of the Strata Owners Alliance, points out the process is almost entirely automated: “There is no legitimate extra cost. Managers profit every time they illegally add these fees to an invoice. No council, telco or utility is allowed to do this.”
Some owners corporation manager are beginning to acknowledge the legal position. One management company, admitted to charging unlawful “debt recovery costs” and attributed these to a “default system setting,” quickly reversing the charges once identified. This suggests the problem may be partly systemic, embedded in the software and processes used across the industry.
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This is “a dodgy practice that should have been stopped years ago.” The State Government should consider making managers pay back every cent to owners who have been charged these fees, with the review providing the perfect opportunity to finally bring this practice to an end.
What is Consumer Affairs Victoria’s position on owners corporation fees?
Consumer Affairs Victoria has explicitly warned against rogue owners corporation fees but states it has no powers to enforce the Owners Corporation Act. This enforcement gap has created a situation where managers can operate “above the law” with little practical consequence, leaving individual lot owners to pursue expensive VCAT proceedings to recover illegally charged fees.
Reform recommendations on owners corporation fees
The upcoming independent review of owners corporation laws presents an opportunity to address these systematic breaches. Advocates argue for:.
- Stronger enforcement mechanisms with real penalties for non-compliance
- Mandatory refunds for illegally charged fees
- Greater oversight of strata management software systems
- Clear penalties for owners corporation managers who continue charging unlawful fees
The persistent charging of unlawful administrative and debt recovery fees by strata managers represents a significant problem in Victoria’s property sector. Despite clear VCAT rulings and legislative prohibitions, the practice continues across the industry, enabled by inadequate enforcement and industry resistance to compliance.
For lot owners facing these charges, the advice is clear: these fees are unlawful and can be challenged.For the industry, the message should be equally clear: compliance with the law is not optional, and the upcoming review provides an opportunity for meaningful reform to protect the rights of strata owners across Victoria
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