Functions of owners corporations
An owners corporation is a statutory body that can sue and be sued.
An owners corporation’s main functions include:
- repairing and maintaining common property, fixtures and services;
- ensuring that each owner keeps the externals of their lot in a state of good and serviceable repair;
- financial management and administration, establishing budgets and special levies, and imposing interest;
- creating and enforcing rules and dispute resolution procedures;
- maintaining necessary insurance;
- complying with governing legislation;
- undertaking proceedings to recover debts;
- providing owners corporations certificates;
- using approved forms;
- holding meetings;
- maintaining an owners corporation register; and
- record keeping.
In carrying out its functions and powers, an owners corporation must act honestly and in good faith and must exercise due care and diligence (s 5 Owners Corporations Act 2006 (Vic)). This places an onus on developers to fix building defects and justify that the extent and cost of long-term management contracts is in the best interests of all owners.
The note to section 10 of the Owners Corporations Act 2006 (Vic) (‘OC Act’) states that, ‘[a]n owners corporation executes a document by the use of its common seal’. It does not say ‘must execute’, and it is arguable that an owners corporation can execute a document without using the seal. The OC Act allows the owners corporation to formally delegate any of its powers and functions to the committee, the manager, a lot owner, chairperson, secretary or an employee of the owners corporation (s 11 OC Act).
The delegation of powers may be made by resolution or by instrument of delegation and must be made at a general meeting.
Under section 11(5) of the OC Act, in the absence of delegated powers, the committee has all the powers and functions that may be exercised by the owners corporation, except in matters requiring a unanimous or special resolution.
A committee may delegate (by instrument of delegation) any of its powers to the manager or to a lot owner (s 102 OC Act).
An owners corporation may require that certain matters that are normally passed by an ordinary resolution must be dealt with only at a general meeting (s 82). These matters are prohibited from delegation or decision by ballot.
The common seal of an owners corporation must not be used on a document unless authorised by the OC Act, OC Regulations, or by a resolution (s 20). A resolution is not required when the seal is applied to an owners corporation certificate (see ‘Owners corporation certificates’ in ‘Record-keeping’ below).
To pass an ordinary resolution requires a majority of the votes that are available at a meeting where a quorum is present (i.e. greater than 50 per cent attendance) (s 92(2) OC Act).
By special resolution (i.e. 75 per cent of the total lot entitlements of all lots affected by the OC Act (s 96(a)), an owners corporation may lease or license the whole or any part of the common property to a lot owner or other person (s 14) or obtain a lease or licence over land (e.g. for additional parking) (s 15).
Legal proceedings must not be commenced unless authorised by special resolution (s 18(1) OC Act). This includes a counter-claim, an appeal and an application to a court. A special resolution is not required for an application to VCAT to recover fees and other money or to enforce the rules of the owners corporation (s 18(2) OC Act). A special resolution is not required to settle a legal matter and a committee resolution may be sufficient, unless that power is specifically reserved for a general meeting to determine. It is better to obtain a resolution to authorise a person to make decisions.
Ballots and polls
Resolutions may be conducted by ballot instead of at a meeting. There are specific requirements in sections 83 to 86 of the OC Act about content, dates, the appointment of proxies, etc. Matters requiring an ordinary resolution must be passed by a majority of the votes returned by the closing date, provided that a quorum is achieved (s 86(2)(a)). Note that a chairperson does not have a casting vote in a ballot.
Voting at a meeting may be by show of hands (one vote for every lot whether the lot is a unit, car park bay or storage area), or in another prescribed manner (s 92(1)), or by poll based on one vote for each unit of entitlement (see ‘Voting’ in ‘Owners corporations’ meetings and decisions‘).
A poll must be in writing and may be called before or immediately after a vote is taken (s 92 OC Act). A voting slip per member recording the lot number, resolution number, signature and a yes or no vote is sufficient. Voting papers and ballots must be retained (s 144(g) OC Act).
Rules and model rules
Schedule 1 of the OC Act specifies 10 categories under which the owners corporation may make rules by special resolution. An obligation to pay legal costs or fines goes beyond the scope of these provisions. Rules that prohibit short-term letting are also beyond the scope of these provisions and are invalid. Only planning schemes can control the use of lots. If the owners corporation does not make any rules or revokes all of its rules, then the model rules under schedule 2 of the OC Regulations apply to it (s 139(2)). Current rules that are registered remain viable, provided they are consistent with the OC Act. Rules must not unfairly discriminate against a lot owner (s 140(a)), they bind owners and occupiers (s 141), they must be registered to have effect (s 142) and they must be given to owners (s 143).
If the model rules provide for a matter and the rules of the owners corporation do not, the model rules relating to that matter are deemed to be included in the rules of the owners corporation.
The model rules have been updated by the new OC Regulations that came into effect on 2 December 2018. The most notable change is the requirement that an owner or occupier of a lot must obtain the written approval of the owners corporation before making any change to the external appearance of their lot. Approval cannot be unreasonably withheld but approval may be given with reasonable conditions (r 5.2).
The OC Act prescribes which records an owners corporation must keep (s 144) and how long the records must be kept for (s 145). However, the OC Act does not mention important records (including warrantees and guarantees from builders, manufacturers and contractors, etc.) and other records that should be kept for life (e.g. architectural plans).
Records are available for inspection on request by a lot owner, mortgagee or purchaser at no charge; however, a reasonable fee may be charged for a copy (s 146). The OC Regulations prescribe maximum fees for a copy of any record. It is reasonable to assume a ‘purchaser’ is a purchaser under contract and not a prospective purchaser, as this term is used elsewhere in the OC Act. It follows that privacy laws cannot be used as a reason to refuse an owner or purchaser access to these records, including the register of owners.
The owners corporation must maintain details of contracts, leases, licences and other particulars in a register prescribed under sections 147 and 148. The register may be kept in an electronic or written form; care must be taken to exclude private information.
The OC Act does not define the term ‘correspondence’. In an unreported VCAT decision, the records of the owners corporation were taken to include all correspondence (including emails) between the manager and members of the owners corporation (including the committee), between the manager and non-members of the owners corporation (third parties), between the committee and members of the owners corporation (lot owners), and between the committee and non-members of the owners corporation. The records of an owners corporation do not include correspondence between committee members, between lot owners, between individual committee members and other lot owners, or correspondence protected by legal professional privilege (see ‘Legal professional privilege’ in ‘Other owners corporation matters‘).
Owners corporation certificates
Any person may apply for an owners corporation certificate under section 151 of the OC Act. The certificate includes a copy of the rules (including the model rules), advice and information to prospective purchasers found in schedule 3 of the OC Regulations, all resolutions made at the last annual general meeting, any other prescribed documents, and a statement advising that further information on prescribed matters can be obtained by inspection of the owners corporation register (s 151(4)(a)).
A certificate must be issued after receiving an application and a fee (s 151(3)). The OC Regulations prescribe different maximum fees depending on the urgency of the request; these fees are indexed annually. The maximum period to issue a certificate is 10 business days.
Certificates must be sealed with the owners corporation’s common seal (s 151(4)(b)) unless they are provided by the vendor. A resolution is not required under section 20 of the OC Act. Section 21(2A) allows the sealing of an owners corporation certificate to be witnessed by a registered manager or the chairperson.
The Sale of Land Act 1962 (Vic) requires the inclusion of an owners corporation certificate in every section 32 vendor’s statement (s 32F) (where applicable). A certificate is not required where the information within the certificate is provided in the vendor’s statement or if the owners corporation has not, in the previous 15 months, held an annual general meeting and has not fixed any fees, nor held any insurance thereby rendering it inactive.
Note that section 150 of the OC Act makes it mandatory for the owners corporation to provide copies of documents kept in the register upon payment of a reasonable fee.
Carrying on a business
As members have unlimited liability for any debts of an owners corporation, the owners corporation is not permitted to carry on a business (s 13 OC Act) but may participate in a registered company that carries on a business (e.g. a gym), as the business entity would be expected to have limited liability.
A subdivision with two lots (e.g. two apartments or two villa units that usually share a common driveway) is exempt from having to comply with many of the sections and divisions of the OC Act.
For example, section 7(1) of the OC Act exempts a two-lot owners corporation from compulsory insurance of the common property. Note that this could leave owners personally liable for an injury on common property if public liability insurance on common property is not included in the lot owner’s individual insurance policy.
Under section 11 of the Sale of Land Act 1962 (Vic), a person cannot sell a lot affected by an owners corporation unless the vendor or the owners corporation has a current insurance policy in accordance with the OC Act. This prohibition does not affect a two-lot subdivision.