On 1 December 2021, the long-awaited amendments to the Owners Corporations Act 2006 (the Act) and Owners Corporations Regulations 2018 (the Regulations) came into effect.
These amendments address many of the gaps and irregularities that have emerged since the legislation was enacted some 15 years ago.
In this update, we summarise some of the most significant changes in the Act relating to the operation of owners corporations. This is not intended to be an exhaustive list of all the changes, instead it provides a useful snapshot of issues to keep in mind in respect of how your owners corporation must now be operated.
We will publish a separate update summarising the new Regulations.
Owners corporation structure
Owners corporations are no longer structured as prescribed and non-prescribed. Instead there are now five tiers of owners corporations, which include:
- Tier 1 — more than 100 occupiable lots.
- Tier 2 — 51 to 100 occupiable lots.
- Tier 3 — 10 to 50 occupiable lots.
- Tier 4 — 3 to 9 occupiable lots.
- Tier 5 — a 2-lot subdivision or is a services only owners corporation (being an owners corporation that has no land or buildings and is essentially created to accommodate common meters for the supply of utilities.
Each of the five tiers have different degrees of regulation depending on the number of occupiable lots, such as:
- whether or not the owners corporation must appoint a manager (Tier 1 must, Tiers 2-5 may);
- whether or not the financial statements of the owners corporation must be audited or reviewed by an independent accountant (Tier 1 must be audited, Tier 2 must be at least reviewed by an independent auditor, Tiers 3-5 can decide);
- whether or not a maintenance plan is required (Tiers 1 and 2 must, Tiers 3-5 can decide); and
- the number of proxies a person can hold for voting purposes at a meeting of an owners corporation.
Commencing legal proceedings
There is no longer a carve out to the need for an owners corporation to pass a special resolution to authorise the bringing of legal proceedings for debt recovery and rule enforcement. There is a new carve out, namely that the matter is within the civil jurisdictional limit of the Magistrates Court and the proceeding is to be issued in VCAT or the Magistrates Court (or corresponding court in other States).
The question to be considered in deciding whether or not a special resolution is required is whether the claim to be made falls within the civil jurisdiction of the Magistrates Court.
The starting point of this analysis is section 100 of the Magistrates Court Act 1989. In short, the amount of the claim or the value of the claim being made must be no more than $100,000 in order for an owners corporation to be able to approve the bringing of legal proceedings by way of an ordinary resolution.
This decision can be made by the owners corporation committee assuming it has fully delegated powers of the owners corporation.
Proceedings that are for a claim that exceeds $100,000 or are to be issued in the County or Supreme Court (even if the claim is for unpaid levies or payment of a debt) require the owners corporation to pass a special resolution as a precondition to that proceeding being commenced. In the absence of such a resolution being passed, the proceeding will be stayed by the relevant court or tribunal.
Happily, the powers of VCAT have been expanded to permit VCAT to make orders requiring a lot owner to pay the owners corporation’s reasonable costs incurred in recovering an unpaid amount from the lot owner. This is likely to include any legal costs incurred for sending a letter of demand.
Owners corporations are given more power to levy additional fees on lot owners with the result that a lot owner can be levied owners corporation costs in excess of their lot liability amount.
The relevant circumstances when this can be done are:
- The owners corporation has incurred additional costs arising from the particular use of the lot by the lot owner (for example, short-stay use or use as a restaurant as opposed to a shop).
- The owners corporation must undertake repairs, maintenance and other works arising from a particular use of a lot by the owner (again, the above examples apply).
- The owners corporation incurs an excess amount or an increased premium resulting from or attributable to an insurance claim if the claim is caused by the wrongful, intentional or negligent conduct of the lot owner, occupier of the lot or invitee of the lot owner.
- Common property is damaged or caused to be damaged by a lot owner or its tenant where either the damage is not covered by insurance or the cost of the damage is less than the excess amount payable on the insurance claim.
- A lot owner makes an insurance claim on the owners corporation’s policy and that claim relates solely to a lot owner’s lot, the excess amount can be levied on that lot owner.
Tier 1 and 2 owners corporations must prepare and approve a maintenance plan.
Pursuant to the transitional provisions in the amended Act, Tier 1 owners corporations have until 1 December 2022 to comply and Tier 2 owners corporations have until 1 December 2023 to comply.
Typically, maintenance plans are approved at a general meeting of members (although the need for it to be done in this way is not prescribed in the Act). What has been made clear in the amended Act, is that once prepared and approved, owners corporations will be able to amend the maintenance plan by way of an ordinary resolution. Arguably, this means that the owners corporation committee exercising its fully delegated powers can amend the maintenance plan.
The amended Act also mandates that the maintenance fund levies (which can be approved by ordinary resolution) must be adequate to fund the approved maintenance plan.
The amended Act confirms that (subject to the relevant owners corporation resolving otherwise) a general meeting can proceed even if there is no lot owner present in person or via proxy. All the resolutions passed will be interim resolutions and become full resolutions 29 days later (unless notice of a SGM is given or the SGM is convened within that period which can delay or decide against the resolutions coming into effect).
However, in conducting such a meeting, the owners corporation manager must not pass an interim resolution:
- with respect to its contract of appointment;
- involving an amount that is greater than 10% of the owners corporation’s annual budget and/or if the annual budget has not been set for the relevant year; and
- involving an amount that is greater than 10% of the owners corporation’s previous year’s annual budget.
There are essentially two critical changes to the proxy regime.
Firstly, a committee member can now only give their proxy to another committee member.
Secondly, the number of proxies a person can hold and exercise at a general meeting of members is now restricted as follows:
- if there are 20 or less occupiable lots, a person can only hold a proxy for 1 lot owner; and
- if there are more than 20 occupiable lots, a person can hold proxies for up to 5% of lot owners.
However, these restrictions do not apply to proxies given to family members or if the owners corporation manages the common property of a commercial, retail or industrial development or if the lot owner for whom the person is authorised to vote owns more than one lot and has authorised that person to vote on the lot owner’s behalf in relation to each lot.
It is important to note that the restrictions are with reference to lot owners as opposed to lots. Therefore, it remains possible for a person to hold the proxies for a lot owner who owns a significant percentage of the lots.
Owners corporations with 10 or more lots must now elect a committee. The committee must consist of between three and seven members. However, the owners corporation can resolve by ordinary resolution to have up to 12 committee members.
Owners corporations now have the power to make rules in respect of proposed works to renovate or alter external appearance of a lot, to:
- protect the quiet enjoyment of all other lots and common property during those works;
- protect the structural integrity of any building on the plan from these works; and
- ensure the market value of any other lot does not decrease as a result of those works.
Further, it is expressly stated in the amended Act that an owners corporation must not make rules that unreasonably prohibit the installation of sustainability items (such as solar hot water systems, solar energy panels and a roof with colours having a particular solar absorption value) on the exterior of a lot. Objection on aesthetic grounds is deemed to be unreasonable.
The amended Regulations included some new model rules that:
- permit an owners corporation to impose reasonable conditions on lot owner/occupier’s rights to access or use common property to protect the quiet enjoyment, safety and security of other lot owners;
- require lot owners/occupiers to ensure that smoke from smoking does not penetrate through to common property or any other lot;
- require lot owners to give their occupiers a copy of the fire safety advice and emergency preparedness plan for the property before they occupy the lot;
- prevent owners corporations from unreasonably prohibiting the installation of sustainability items on the exterior of the lot. However, they can impose reasonable conditions relating to colour, mounting and location; and
- better facilitate dispute resolution of grievances.
It remains a requirement for owners corporations to take out reinstatement and replacement insurance and public liability insurance for all buildings on the common property. However, pursuant to the amendments to the Act, if a plan of subdivision has one or more building which is a multi-level building and at least one of those buildings has its own owners corporation, then the owners corporation of the multi-level building must only take out reinstatement and replacement insurance and public liability insurance for that building.
The insurance for the rest of the estate must be taken out by the unlimited owners corporation.
Contracts of appointment
From 1 December 2021, contracts of appointment entered into with owners corporation managers have a maximum term of three years. Notably, contracts that existed prior to 1 December 2021 that were for longer than three years can still run their full course.
In both pre-existing or new contracts of appointment the following terms are void with effect from 1 December 2021:
- Terms which require an owners corporation to pass a resolution other than an ordinary resolution or requires it to convene a general meeting of members to vote on the resolution as a pre-condition to revoking the contract of appointment.
- Terms which allow the manager to renew the contract at its option.
- Terms which cause the contract to automatically rollover if the owners corporation fails to give notice of its intention not to renew the contract.
- Terms which require Tier 1 or 2 owners corporations to give three months or more notice of its intention to revoke the contract.
- Terms which require Tier 3, 4 or 5 owners corporations to give one month or more notice of its intention to revoke the contract.
- Terms which restrict the ability of the owners corporation to refuse consent to an assignment of the contract other than a requirement that such consent must not be unreasonably withheld.
Additional disclosure requirements for managers
It has long been the case that owners corporation managers must disclose the commissions received from insurance companies for arranging insurance for the owners corporations that they manage. This concept has now been extended to all aspects of its functions in that managers must now disclose any benefit received by reason of the owners corporation it is managing entering into a contract. Further, managers must disclose any beneficial relationship it has with a supplier prior to entering into any contract for the provisions of goods and services.
Although previously captured by the duty to act diligently and in good faith, there is also now a positive obligation on managers to ensure that any goods or services procured by the owners corporation are competitively priced and competitive terms.
If you would like to discuss these and other amendments to the Act and Regulations, please contact Anton Block, Principal Lawyer and Head of Owners Corporation, on (03) 8600 8833 or firstname.lastname@example.org, or Catherine Emmerton, Lawyer, on (03) 8600 0713 or email@example.com.
This Owners Corporation update was authored by Anton Block, Principal Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.