Living with an Owners Corporation in Melbourne

David Brett

Introduction

We live in one of the world's most urbanised countries and an increasing number of Australians are choosing apartment living, whether out of preference, convenience, or for other reasons.

The 2016 Census found that 10% (2,348,434) of all Australians spent Census night in an apartment (including flats and units) and, given the number of new apartments coming onto the market and, that our population has already surpassed 25 million, it is reasonable to assume that apartment living will continue to increase.

If you are thinking of purchasing an apartment either to live in or as an investment, then chances are that you will need to come to grips with being a member of an Owners Corporation (OC). Your first introduction to the OC should be in the vendor’s statement (S. 32 Sale Of Land Act 1962).

Statutory framework

Section 27A of the Subdivision Act 1988 provides that if there is common property in a proposed subdivision, an OC must be created when a plan of subdivision containing common property is registered with Land Victoria.

The Owners Corporations Act 2006 (the OCA) provides that the functions of an OC are to manage the common property of a residential, commercial, retail, industrial or mixed-use property development. The common property in each subdivision will be defined in the plan of subdivision and may include parts of the land, buildings and even some of the airspace.

Section 11 of the OCA provides that an OC is to be managed by or under the direction of the lot owners and that the lot owners may delegate that duty. The Business Licensing Authority Act 1998 provides that any person or company carrying on business as an OC manager must be registered by the Business Licensing Authority (see also s. 178 OCA).

It is common in multi-lot developments for the property developer, as the initial lot owner, to control the OC and that at some point in time, the developer will enter into a management contract with an OC Manager. If the lot owners are dissatisfied with the performance of the OC Manager, they may subsequently terminate the contract and appoint another manager; however, this may come at some commercial cost (see also s. 177 ff. OCA).

Section 138 of the OCA provides that an OC may make rules for or with respect to any matter set out in Schedule 1 of the OCA, otherwise, section 139 provides that the Model Rules prescribed in Schedule 2 of the Owners Corporations Regulations 2007 (the OCR) are to apply.

Before you sign anything

Before signing a contract of sale, consider engaging a qualified building inspector to provide a professional building inspection report. This is because as a lot owner, you are assuming a portion of the liability for the repair of the common property and you could be taking on a great deal more than you originally bargained for.

Owners Corporation Certificate

An OC must issue an Owners Corporation Certificate to any prospective purchaser within 10 business days of receiving a written request and payment of the relevant fee (s.151 OCA).

The certificate must include the information prescribed in regulation 11 of the OCR including details of any legal proceedings to which the OC is a party and any circumstances of which the OC is aware that are likely to give rise to proceedings.

Owners Corporation disputes:

Section 152 of the OCA provides that a lot owner, an occupier of a lot or a manager may make a complaint to the OC about an alleged breach by a lot owner or an occupier of a lot or a manager of an obligation imposed on that person by the OCA or the OCR or the rules of the OC. Complaints about other issues e.g. building defects are not OC disputes and are handled quite differently.

Section 153 of the OCA provides that an OC must not take action in relation to an alleged breach unless the dispute resolution process required by the rules has first been followed. Unless the OC has varied the rules, Clause 6 in the Model Rules sets out the grievance procedure that is to be used.

Having gotten to this point, section 160 of the OCA provides that any person may complain to the Director of Consumer Affairs Victoria and access the dispute resolution services provided through the Dispute Settlement Centre of Victoria (DSCV); however, this is a voluntary process.

Section 162 of the OCA provides that the Victorian Civil and Administrative Tribunal (VCAT) has jurisdiction to hear and determine a dispute or other matter arising under the OCA, the OCR or the rules of the OC. Section 163 of the OCA provides that individual lot owners may apply to VCAT on behalf of an OC if required which means that the rule in Foss v Harbottle (1843) 67 ER 189 does not apply to OC disputes.

Other disputes

Many apartment purchases are in buildings that are less than 10 years old and it is not uncommon for there to be structural defects that may not be immediately obvious to the casual or lay observer.

In some instances, e.g. apartments constructed less than 10 years ago that have a structural defect, the builder may have some liability to repair defects affecting the common property. However, if for example, the defect affects your apartment alone, and the builder refuses to acknowledge liability, you may find that the OC may be unwilling to engage in any litigation to enforce the builder’s statutory obligations.

In any event, s. 18 of the OCA provides that an OC must not bring legal proceedings (other than some VCAT matters) unless it is authorised to do so by a special resolution of the OC. Section 96 of the OCA sets out what is required to obtain a special resolution. Fair warning...it can be quite difficult, particularly if there are a significant number of absentee lot owners.

Otherwise, there is no generic advice if you are unfortunate enough to find yourself in an apartment that is affected by a latent structural defect and you will need to seek expert legal advice in relation to which individual or entity has legal standing (NB it's not always clear) and in which jurisdiction to bring a claim i.e. the exception to the rule in Foss v Harbottle referred to above may not apply.

For Melbourne members of an Owners Corporation wanting to have a preliminary discussion in relation to their legal options, please contact David Brett at DTCH Lawyers.