By Russell Cocks, Solicitor
First published in the Law Institute Journal
The Owners Corporations Act 2006 took effect on 1 January 2008. In some respects it is a radical change; in others it is just like a holiday – more of the same in a different place.
Owners corporations (OCs) are creatures of subdivision. Land may be subdivided into separate parcels and share nothing with its neighbour other than a boundary. But some subdivisions adopt a more ‘community minded’ approach and add on to ownership of the land an interest in land owned ‘in common’ with adjoining neighbours. This is essential in multistorey developments, where all owners need to share common points of access, and is also common in lifestyle developments that include enhancements such as tennis courts and swimming pools. Ownership of these common areas is shared amongst the owners and the concept of a ‘body corporate’ was developed to provide a legal entity to act as owner. These developments are primarily governed by the Subdivision Act and the nuts and bolts of this governance were previously set out in the Subdivision (Body Corporate) Regulations.
The new Act retitles these entities as owners corporations but their role remains fundamentally the same – to act as a legal entity to own common areas in subdivisions. The most significant change is the move of the legislative basis for these entities from the low level of statutory rules into the higher plane of legislation. Most of the substance previously contained in the regulations now lies in the Act, and whilst there are still some regulations (Owners Corporations Regulations 2018) these are far less significant. In this regard however the changes are more as to form than substance and the essential governance provisions relating to owners corporations are fundamentally the same as those relating to bodies corporate, albeit in a slightly more salubrious garment.
Substantive changes introduced by the new Act are:
- 2-lot plans are treated slightly differently to other plans (s 7)
2-lot plans are exempt from some requirements, notably the obligation for the owners corporation to provide public liability insurance in respect of common property. Most ‘strata’ insurance policies extend cover to the owner’s liability in respect of common property so this change will probably not be significant, but nevertheless it seems strange from a policy viewpoint.
- large subdivisions will need to establish maintenance plans and funds (s 36)
Subdivisions of over 100 lots or that levy fees over $200,000 per annum are obliged to establish 10-year maintenance plans and dedicated maintenance levies to fund these plans. This will re-open the debate in relation to adjustment of levies on sale, which have traditionally not been adjustable.
- insurance (ss 59-61)
Insurance obligations remain fundamentally the same. Owners corporations must insure any buildings on common property (s 59) and must have $10 million public liability insurance in respect of common property (s 60). Multistorey developments must also insure all buildings and have public liability insurance that covers the lots (s 61) as well as the s 60 public liability insurance in respect of common property. This is logical as damage to one lot in a multi-storey development is likely to impact on other lots (above or below) so a joint insurance policy makes sense.
- managers (s 119)
Recognizing that owners corporations arising from intensive inner-city developments are likely to be big business, a registration regime has been introduced for managers. No particular qualifications are required.
- model rules (s 138)
A new set of model rules (set out in the regulations) have been prescribed. These apply in default of other rules and may be changed by adoption or resolution. Rules of a pre-existing body corporate continue, presumably even if they were simply the previous standard rules.
- dispute resolution (s 152)
The ubiquitous VCAT (Victorian Civil and Administrative Tribunal) has been given jurisdiction to resolve disputes, at the end of a formal dispute resolution process.
- Subdivision Act (s 206)
Substantial amendments, but mainly as to form, have been made to Part 5 of this general supervising Act.
- limitation of actions (s 222)
Owners are prohibited from claiming adverse possession of common property.
- Sale of Land Act (s 217)
Amendment of s 32 Sale of Land Act is the most significant practical effect of the new Act. Vendors must now include an owners corporation certificate (OCC) in pre-contract disclosure. Owners corporations must provide an OCC within 10 days of application and may charge up to $150 (including GST). There is no prescribed form of OCC but there is prescribed information that must be included and prescribed documents that must be attached.
2-lot plans are not exempt from this requirement. The vendor of a 2-lot plan must provide an OCC.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.