Changes to the Owners Corporations Act 2006 Pages

Changes to the Owners Corporations Act 2006

Amendments to the Owners Corporations Act 2006 commencing 1 December 2021 are comprehensive and significant. They aim to balance the interests and requirements of different size complexes as well as strengthen the regulatory responsibilities of developers, managers, decision-making processes, and dispute resolution. Control of the common property within a plan of subdivision will be fairer, more efficient and transparent.

snapshot

• These amendments reflect a genuine effort for widespread consultation to produce a more liveable environment for communities affected by owners corporations.

• The introduction of previously unavailable consumer legislation will curb the undesired elements of developers and managers and make their accountability more prominent.

• Owners and occupiers may be able to enjoy a fairer, more efficient, secure, and transparent delivery of processes and services.

a major reform of owners corporations legislation in Victoria

The revised Owners Corporations Act 2006 (“Act”) to commence on 1 December 2021 is a successful accumulation of diverse opinions from a wide field dedicated to the goal of creating an equitable and effective regulatory environment for communal living. This article presents the main features plus concomitant amendments to other Acts that affect an owners corporation (“OC”) including OCs in retirement villages, and the Subdivision Act methodology of setting lot entitlement and liability.

Functions and powers

The concept of a prescribed OC¹ has been replaced with five tiers of OCs: tier 1 comprising more than 100 occupiable lots, tier 2 comprising 51 to 100 occupiable lots, tier 3 with 10 to a maintenance plan for its common property. Such plan may be amended by ordinary resolution and levies struck must be adequate to fund the plan. By special resolution, moneys may be drawn from the maintenance fund for other purposes.

50 occupiable lots, tier 4 with 3 to 9 occupiable lots, and tier 5 being a 2-lot OC or a “services only” OC².

Whereas a special resolution was previously required for an OC to commence legal proceedings in the Magistrates’ Court of Victoria or the Victorian Civil and Administrative Tribunal (“VCAT”), an ordinary resolution is now sufficient. A special resolution is still required to commence legal proceedings in the County Court or higher.

An OC is no longer required to have or use a common seal.

An OC may dispose of goods abandoned on the common property under specified sections of the Australian Consumer Law and Fair Trading Act 2012.

Financial management

If an OC incurs additional costs arising from the particular use of a lot by the lot owner, it may levy additional annual fees on that lot owner. For example, increased insurance premiums due to the risk associated with short-stay residential accommodation or a change of commercial tenancy.

Tier 1 OCs must have their financial statements audited whereas a tier 2 OC’s accounts must be reviewed by an independent authorised accountant. Neither an audit or review is required for a tier 3, 4 or 5 OC, but it is optional.

Insurance

A 2-lot plan of subdivision continues to be exempt from having public liability insurance on common property and now this will also apply to a ‘services only’ OC. This appears to be an important omission.

All OCs (other than a tier 5) must obtain building valuations every 5 years or earlier. Public liability insurance for common property must not be less than $20 million.

Large multi-level buildings with separate OCs on the same plan of subdivision, must now insure separately and be valued separately.

An OC on a plan of subdivision for multiple single dwellings with common property may, by unanimous resolution, resolve that the lot owner of each single dwelling is responsible to insure their lot.

In certain circumstances, an OC can pass on an insurance excess to an individual lot owner.

Presently, annual administration fees comprise insurance and other recurrent expenses which must be levied based on lot liability. In OCs where lot liability and lot entitlement differ, the amended Act allows insurance to remain part of annual recurrent expenditure, levied on lot liability, but the OC may also elect to levy insurance separately based on lot entitlement. This will impose an equitable balance in situations where larger lots with greater entitlement often have similar lot liability compared with much smaller lots.

Meetings and decisions

The applicant for registration of the plan of subdivision must disclose any relationship with the manager of the OC as well as any commission, payment, or benefit from that relationship.

an OC or an associate (as defined) of an initial owner must not:

• Be appointed as manager of the OC; • Vote on any resolution of the OC that relates to a building defect; • Receive any payment from the OC manager in respect of the manager’s contract; • Designate as a private lot what normally would be common property; or • Propose an unreasonable or unsustainable annual budget.

Unless an OC resolves otherwise, a manager may pass an interim resolution at a general meeting even if no lot owner is present provided additional expenditure is not greater than 10% of the current annual budget and does not affect the manager’s contract of appointment. This will ensure that the OC can continue to function.

A lot owner in arrears must not vote as a proxy for another lot owner at a meeting or represent another lot owner for the purpose of election to a committee.

A person must not vote as a proxy or attorney for more than one lot owner if there are 20 or less occupiable lots on the plan of subdivision and not more than 5% of lot owners if there are more that 20 occupiable lots. Family exceptions apply.

Committees

An OC comprising 10 or more lots (previously 13 or more lots) must elect a committee at each AGM.

A member of a committee may provide a proxy for a committee meeting only to another committee member.

A committee must have at least 3 members and no more than 7 unless the OC resolves to increase that by ordinary resolution to not more than 12 members.

Managers

A tier 1 OC must, whereas other tiers may, appoint a manager. A manager cannot be appointed for a period that exceeds 3 years. It is the OC that determines any offer of renewal thereafter. must not include terms –

• Making an OC convene a general meeting or pass a special resolution revoking the appointment of the manager; • Allowing the manager to renew the contract of appointment at the manager’s option; • Requiring a tier 1 or tier 2 OC to give 3-months or more notice of its intention to revoke the manager’s appointment, or one month for other tiers; • Providing for the automatic renewal of the contract of appointment if the owners corporation fails to give notice, in accordance with the terms of the contract, of its intention not to renew the manager’s contract, in which case the contract continues monthly or a shorter period equal to the contractual notice; and • That restrict the ability of the OC to refuse consent to an assignment of the manager’s contract of appointment other than a requirement that such consent must not be unreasonably withheld by the OC.

An OC manager must:

• Take reasonable steps to ensure that any goods or services procured by the manager on behalf of the OC are procured on competitive prices and on competitive terms;

• Not exert pressure on any member in to influence the outcome of any decision of the OC; • Before entering a contract for the supply of goods and services, provide written notice to the chairperson of the OC disclosing any commission, payment, or other benefit which the manager is entitled to receive, other than from the OC, and those details must be included in the manager’s report at the annual general meeting of the OC; and • Immediately on becoming aware that a proposed contract is with a supplier with whom the manager has a beneficial relationship, and before the contract is entered into by the OC, provide written disclosure to the chairperson of the OC of any beneficial relationship, commission, payment, or other benefits with or from that supplier. The terms ‘associate’ of the manager, ‘control’ and ‘executive officer’ are defined in the Act.

A manager must hold all money on behalf of separate OCs in separate bank accounts but may hold moneys in the same bank account if –

(a) Each OC is on the same plan of subdivision, and each has consented;

(b) The bank account is a statutory trust account held by a licensed estate agent, legal practitioner, or licensed conveyancer.

Money held by a manager on behalf of an OC on trust for the OC, includes any interest earned.

Registration of managers

A person guilty of specified criminal offences is not eligible to register as an OC manager if it is found contrary to the public interest.

There are no educational requirements to be licensed as an OC manager, and there is no requirement to engage in continual professional development.

Rules

An OC may make rules in respect of proposed works to renovate or alter the external appearance of a lot, to protect the quiet enjoyment of all other lots and the common property during those works, to protect the structural integrity of any building on the plan of subdivision and to ensure that the market value of any other lot does not decrease because of those works.

An OC must not make rules, solely on aesthetic grounds, that unreasonably prohibit the installation of sustainability items on the exterior of a lot (such as solar panels).

An occupier of a lot (including an owner or tenant) must ensure that any invitee complies with the rules of the OC. If the invitee breaches the rules, both the occupier and invitee are jointly and severally liable for any compensation or penalty. A lot owner is not liable for an invitee’s breach if the lot owner provides the invitee with a copy of the rules of the OC.

Rules may be made: • Requiring advice to be given to occupiers about fire safety procedures and the operation of fire alarm systems; • Regarding payment of fees by instalments by lot owners in financial difficulty; or • Regulating and prohibiting the drifting of tobacco smoke from a lot in a multi-level development.

Rules are of no effect if they are oppressive to, unfairly prejudicial to or unfairly discriminating against a lot owner, or an occupier of a lot.

Records

At the request of a person entitled to inspect the OC register and on payment of a reasonable fee, An OC must provide a copy of the register or any part of the register. Under the amended Act, a lot owner must not authorise a representative who is not a lot owner to request a copy of the register or any part of the register for a commercial purpose without the prior consent of the OC.

Complaints

Complaints can no longer be made to the OC in relation to the recovery of any fees, charges, contributions, or amount owing to the OC.

application to VCaT

VCAT may hear and determine a dispute or matter relating to:

(a) A term of a contract of appointment of the manager of an OC and whether the term is fair. [In so doing, VCAT must consider Part 2-3 of the

Australian Consumer Law (Victoria) as if a reference in those Parts to a consumer contract were a reference to the contract of appointment of the manager]. (b) The disposal by an OC of goods abandoned on common property.

It may make an order requiring a lot owner to pay to the OC reasonable costs incurred by the OC in recovering an unpaid amount from the lot owner.

Presently, a successful applicant in a debt recovery matter at VCAT is likely to be awarded legal costs of $600 that includes the application fee and any corporate search fee. Unless ‘reasonable costs’ are significant, the lure of greater costs orders in the Magistrates’ Court may see a decline in the OC list at VCAT.

New provisions clarify how a lot owner may apply to VCAT for an order that authorises the lot owner to commence, prosecute, defend, or discontinue a specified proceeding on behalf of the OC³.

VCAT may make an order requiring an occupier of a lot to grant entry to a lot or a building on a lot to a person authorised by an OC to carry out repairs, maintenance, or other works on behalf of the OC on common property.

Currently, if a person fails to comply with a rule of an OC that imposes an obligation that is binding on that person, VCAT may make an order imposing a civil penalty not exceeding $250 payable to the Victorian Property Fund. That amount has increased under the amended Act to $1,100 and will be payable to the OC.

subdivisions act 1988

Under Part 5 of the Subdivisions Act, an initial owner must engage a licensed surveyor to set out the initial allocation of lot liability and lot entitlement in the plan.

A new section 27F (4) lists the criteria for the creation or alteration of lot entitlement or lot liability.

Previously, this section only considered alteration of lot entitlement or lot liability. The new criteria should curb developers from implementing unfair schedules.

Retirement Villages act 1986

The Act has been amended to clarify that residents in retirement villages may elect a residents committee to represent the interests of the residents.

general

New provisions specify the way documents may be provided to or served on an OC, including electronic transmission, and permits service on the committee and its officers.

Any rainwater or other water that falls, occurs, or flows on the common property (otherwise than in a waterway or bore as defined in s 3(1) of the Water Act 1989) is taken to be part of the common property. This grants the OC permission to take and/or use the water referenced.

Conclusion

These reforms will deliver transparency and confidence to lot owners subjected to an otherwise heavily litigated environment.

The key unfair contract terms provisions in the Australian Consumer Law and Fair Trading Act 2012 that were unavailable to OCs have been specifically incorporated into the Act. This could negate past abuse by unscrupulous managers and developers. Other conduct involving long term contracts, the misuse of proxies, and inequitable units of entitlement and liability have also been addressed. There is real hope that the volume of disputes will diminish, and that quality of processes will improve.

Norman Mermelstein is the principal of Law Ink Pty Ltd, a member of the Property and Environmental Law Section Leases Committee and Property Law Committee, Succession Law Committee member, and an accredited mediator.

Neville Sanders is a valuer, National Manager of Strata Services, Whittles Body Corporate Management, and past president of both the Real Estate Institute of Victoria and the Real Estate Institute of Australia.

Both are REIV accredited Owners Corporations Specialists, Owners Corporation Committee members, licensed estate agents and for the past 13 years, co-authors of the Owners Corporations Chapter of the Fitzroy Legal Service’s Law Handbook. This article was first published in the Law Institute Journal (December 2021).

Footnotes:

1. A prescribed owners corporation was defined in the version 1 of the OC Regulations 2018 as an OC that levies annual fees more than $200,000 in a financial year or an OC that consists of more than 100 lots. 2. A ‘services only’ OC has no occupiable lots but contains services on common property such as shared water, gas and sewerage pipes, pumps, drains, electrical and telephony infrastructure, and common property assets such as fences, pools, and water tanks. 3. See new Division 1B of Part 11.