A lot in a body corporate has ‘lot entitlements’ which is split into two schedules: interest and contribution. This is because a lot in a body corporate also has the benefit of enjoying (and contributing to the maintenance of) a body corporate.
The contribution schedule lot entitlement determines the proportion of levies that a lot owner will be liable for. When the body corporate is created, or if seeking a change, the proportion of contributions will be determined by either two principles: equality, or relativity. Equality might be the better principle if the lots are similar, whereas relativity might be better if there are many different types of lot.
If there were 6 units in a townhouse complex, it might be that they are very similar (if not close to identical), so it might be suitable for each unit to have the same contribution schedule lot entitlement. On the other hand, if there was a building with 7 lots, if the first three levels had two lots, and the last lot was a massive penthouse that took up two levels, then the penthouse would definitely attract a higher contribution schedule lot entitlement. If there was a commercial lot on the ground level, then because it may be operating with high energy costs (for example), it may also have a higher contribution schedule lot entitlement.
Of great importance is that the contribution schedule lot entitlement is also used to determine if a special or a majority resolution will pass. This is because, although all lot owners only have one vote per lot, some votes might change things like common property. If someone contributes much more than others, then it is only natural that, for important resolutions, if it comes down to the wire, they get a greater say if they are the ones contributing much more for it.
The interest schedule lot entitlement is different, in that it rarely affects the lot owner. This determines the lot owner’s share of common property, their interest on termination of the body corporate, and the value of the lot for any particular tax.
For example, if the local government issues a charge to the building, then that will be borne by the lot owners in proportion to their interest schedule lot entitlement. What is also important is if the body corporate is terminated. Often a person will buy all lots and terminate the scheme for redevelopment, but it is possible for lot owners to agree to terminate the scheme. If they do, then they take a share in the common property in proportion to their interest schedule lot entitlement. If 10 lot owners each had 1 interest schedule lot entitlement, and the scheme was terminated, then the common property would no longer be owned by the body corporate: it would be owned by each lot owner as tenants in common in 1/10th shares each.
This article is intended as general information only and should not be relied upon as legal advice. For specific legal advice please contact us here.