By Russell Cocks, Solicitor
First published in the Law Institute Journal
An owners corporation is a legal entity established by statute to represent the owners of property. It is a body corporate and it may come into existence (is incorporated) cert as a consequence of the registration of a plan of subdivision pursuant to the Subdivision Act.
Owners corporation can be huge, or tiny. They can apply to a skyscraper development of hundreds of units, or to a simple two lot subdivision. The policy of treating all developments, whether large or small, in the same way creates difficulties for property lawyers and the determination of the legislators to demand compliance with the strict letter of the law creates unnecessary difficulties for clients.
Multi-unit apartment blocks are big business. Hundreds of owners can pay thousands of dollars of fees per year and government supervision of the managers of such owners corporations is welcome. But this is a million miles away from the affairs of the humble two or three unit development in the ‘burbs. Imposing compliance with an Act spanning 224 sections in those circumstances is overkill and leads to avoidable expense in the conveyancing process.
Whilst accepting that the statutory regime works in the large scale environment, one problem does stand out. A vendor is obliged to include an owners corporation certificate in the Vendors Statement required on the sale of a property affected by an owners corporation. A fee of $150 is payable to the owners corporation for this certificate, which must be provided within 10 business days – both acceptable, if generous, requirements. However many large developments have more than one owners corporation (3 are common and 5 not uncommon) and a charge of $150 for each certificate seems excessive. Like all repetitive processes, the cost of subsequent certificates rarely equals the cost of the first and a fee of $100 for the second and $75 for subsequent certificates would be reasonable. Charges for updating certificates should also be reduced to, say $75.
However the biggest problems arise in the application of the certificate requirements in small scale developments. Large developments have professional managers who generate certificates with ease and are paid to do so. Most small owners corporations are managed by a volunteer member, or not managed at all. The ‘inoperative’ owners corporation is the bane of the conveyancing practitioner’s life. Having to explain to the proverbial ‘little old lady’ (or executor) that the property cannot be sold until the mythical owners corporation certificate is produced smacks of farce when, in the client’s view, the owners corporation does not exist, so how can it provide a certificate?
Faced with this conundrum, the practical solution has been to produce a ‘lite’ certificate – a document following the form of the certificate but revealing that there are no meetings, no levies and, effectively, no owners corporation and to have that ‘certificate’ signed by the client. In terms of disclosure, it provides the prospective purchaser with a perfect perspective of the situation, one which the purchaser, if so minded, can activate in the future.
But practical solutions are anathema to desk-bound bureaucrats who demand compliance with one-size-fits-all regulations and requirements have been introduced (although not as yet operative) that require all owners corporation certificates to be sealed with the common seal of the owners corporation, and existing regulations require the use of the seal to be witnessed by two owners. Now we must tell our clients that before they can sell they have to buy an owners corporation seal and affix the seal to a mythical certificate in the presence of another owner. Alice in Wonderland is alive and well.
The sense of unreality is magnified where the plan of subdivision does not create common property but does create an owners corporation. Where all lots have road access, common property may not be necessary but nevertheless the surveyor may create an owners corporation because service authorities require one entity to be responsible for service facilities. Explaining to a client in such circumstances that there is an owners corporation and that an owners corporation certificate, with seal and witnesses, is required before the sale can proceed makes the adviser look silly.
Regulation of large owners corporations is welcome, but the imposition of those regulations on ‘small’ owners corporations is overkill. Although somewhat arbitrary, a plan of subdivision creating 6 or less lots ought to be exempt from complying with most of the requirements of the Act, although they could choose to do so.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.