Owners Corporations, Bodies Corporate, or Strata Title is a system first introduced to Australia in the early 1960's to enable the legal ownership and management of portions of buildings. These portions are called 'lots'. You are likely to be a member of a Body Corporate if you own a flat, apartment or unit. Your Body Corporate became an Owners Corporation on 31 December 2007, when the Owners Corporations Act 2006 came into force. This law sets out the duties and powers of Strata Corporations. Strata Corporations can be big, medium or small. They can also be residential, industrial or commercial.

Common Property is usually seen as driveways, but may also include, for example, gardens, passages, walls, pathways, lifts, foyers and fences. Large Owners Corporations may also include facilities such as gyms, swimming pools or tennis courts in the common property. It is the responsibility of a Strata Corporation to manage the common property of a residential, commercial, retail, industrial or mixed-use property development.

Generally speaking, your apartment block will have a professional strata manager. If not, then it's a self-managed block, which means one (or all) of the owners have agreed do the management themselves.
Whether you have a professional manager, or decide to self-manage your Owners Corporation, the manager's functions must be carried out in accordance with the Owners Corporations Act 2006.

What many people don't realise is that an Owners Corporation has numerous legal obligations. This is to protect the investment of the owners and prevent situations such under-insurance and poor building maintenance.

The Manager's To-Do List

A strata manager is appointed by the Owners Corporation pursuant to relevant section of the Owners Corporation Act and delegated certain powers and functions to carry out duties of managing and administrating the common property in accordance with the manager’s contract of appointment.  
 
Strata manager are specialists in the field and possess knowledge and skills to administrate and look after the day-to-day affairs of the Owners Corporation, predominantly carrying out the duties of the secretary and treasurer of the Owners Corporation.
 
The duties include:    

  • Carry out secretarial and treasure duties.

  • Issue fees and levy notices.

  • Keep accurate accounts and prepare an annual financial statement of the Owners Corporation.

  • Prepare budgets, activity reports and schedule Annual General Meeting.

  • Attend Annual General Meetings and issue minutes.

  • Maintain Insurance Policy and submit claims as required.

  • Obtain quotations and arrange maintenance works as instructed by owners.

  • Pay accounts and invoices issued to the Owners Corporation.

  • Prepare Owners Corporation certificates as required.

  • Attend to all Owners Corporation correspondence.

  • Provide recommendations for committee and Owners Corporation on management matters to ensure compliance.

  • Establish and maintain the Owners Corporation Register.

  • Assist the Owners Corporation with dispute matters related to the Model Rules.

Common property includes any parts of the land, buildings and airspace that are not lots on the plan of subdivision. Common property may include gardens, passages, walls, pathways, driveways, stairs, lifts, foyers and fences. The common property is collectively owned by the lot owners as tenants in common. It must be clear where the boundaries within a development are located (i.e. how far the common property extends up to, or into the buildings themselves).  

When a plan contains building boundaries, the plan must define the location of those boundaries by stating whether those boundaries lie along the 'Interior face', 'Exterior face' or the 'Median' of the relevant building structure.  

Because these boundaries affect maintenance and insurance, you should always check the plan of subdivision carefully and ask questions where anything is unclear. 

Most Owners Corporations (OC's) are managed by a professional/external management company. However some Owners Corporations are fortunate in having all the necessary skills in-house and decide to self-manage their property. Self-managed properties are typically small (3 to 9 lot) blocks of units where the unit owners aim to save money by delegating management tasks to one or more unit owners on a voluntary basis (and the voluntary factor is important because these persons must not receive payment for their services). Frequently one owner volunteers to take on all the tasks of managing the Owners Corporation.

This may often work well in the short-term, however over a period of time many self-managed Owners Corporations experience difficulty in handling the huge range of activities, large maintenance projects, paperwork and funds management that is required by law. This can be just as true of smaller Owners Corporations as it is for large ones. Many self-managed Owners Corporations become difficult to manage when a large proportion of the units are tenanted. As a result, difficulty is also experienced in remaining legally compliant, as well as in resolving potential disputes about everything from noisy neighbors to parking issues to maintenance problems. When this happens, the Owners Corporation often will seek the services of a specialist strata management firm like MBCM.

In our experience, self-managed Owners Corporations typically call for a quote from a management company when:

  • The volunteer owner-manager has to resign from their Owners Corporation duties for any reason.

  • Fees become difficult to collect from some owners (who may live in another state or even overseas).

  • A dispute escalates and is deemed unresolvable.

  • Major maintenance or construction works are required.

  • To ensure legal compliance.

  • For any other reason (sometimes the task just becomes too onerous).

Strata insurance is insurance that the Owners Corporation (also known as the Body Corporate) is obliged to take out to cover the building, common property and common area contents of a strata scheme. Insurance is available for both residential strata and commercial strata properties. It is mandatory to hold strata insurance which conforms to each state’s relevant legislation in Australia.
 
Strata Insurance typically covers common area contents, the building and shared property in the event of loss or damage. Generally, events like theft of common area contents, repairs to damaged property managed by the Owners Corporation and the cost of recovery if disaster strikes are also included in strata insurance. It is also compulsory for strata insurance in all parts of Australia to provide liability cover in the event that people are injured on common property.

Strata Corporations are legal entities. This means they can sue or be sued. They are subject to a range of governance:
  • Subdivision Act 1988
  • Subdivision Regulations 2001
  • Owners Corporations Act 2006
  • Owners Corporations Regulations 2007
  • Rules of the Owners Corporation 
The Victorian Government regularly updates the Strata Corporation Act and Regulations, and it is important that owners and managers keep their knowledge up-to-date with any amendments.

A Strata Corporation has a range of obligations under the Strata Corporation Act 2006. Strata Corporations MUST:
  • Manage and administer the common property
  • Repair and maintain the common property, fixtures and services
  • Take out and maintain required insurance
  • Raise fees from the lot owners to meet financial obligations
  • Prepare financial statements and keep financial records
  • Provide Strata Corporation certificates when requested
  • Keep an Strata Corporation register
  • Establish a grievance procedure
  • Carry out any functions and duties under the Owners Corporations Act 2006, the Owners Corporations Regulations 2007, the Owners Corporation Rules and any other law or regulation
  • Ensure compliance with Owners Corporations Act 2006, the Owners Corporations Regulations 2007 and Owners Corporation Rules.
The Owners Corporation sets annual fees to cover general administration maintenance, insurance and other ongoing costs. The Owners Corporation can decide the level of fees, how they are paid and times for payment (usually quarterly). An Owners Corporation can also levy special fees or charges on lot owners to cover extraordinary or unexpected expenditure (for example to pay for painting of the building).  
Owners must pay their share of the annual fees according to lot liability and special fees either according to lot liability or based on the Benefit Principle, as determined on a case by case basis.
If owners do not pay fees, they lose the right to vote on all matters requiring an ordinary resolution. Although, they can still attend meetings of the Owners Corporation, they can only vote on matters requiring a special resolution or unanimous resolution. The Owners Corporation can also charge penalty interest on any money owing and take action to recover any debts in a court or at the Victorian Civil and Administrative Tribunal (VCAT). 
Property development is a multifaceted business, encompassing activities that range from buying land, raising finance, designing, obtaining necessary approvals, building projects, marketing property, leasing and selling and in many cases, managing the property as well. All too often however, the function of setting up the Owners Corporation, in line with legislative requirements, is delayed, neglected or as is sometimes the case, forgotten completely. When a developer has failed to follow the prescribed legislative processes in setting up an Owners Corporation, they are exposed to delayed settlements, buyers walking away, angry owners and additional expense in rushing through the compliance requirements. To avoid getting caught out, and to avoid unnecessary grief, worry and extra work it's important that you think about the Owners Corporation when you are in the initial stages of the development.
Decide on the Rules that will be used to manage the Owners Corporation. If you are the developer, you make the rules. All Owners Corporations have rules for the control, management, use or enjoyment of common property and lots. The rules cover day-to-day issues such as parking, pets, noise and dispute resolution. Rules made under the Owners Corporation Act 2006 and registered at Land Victoria apply to:
  • The Owners Corporation
  • Lot owners
  • Sub-lessees
  • Occupiers or tenants.
Many developers decide on the stock-standard Model Rules. There are many occasions where you should consider making special rules. For instance, you might be building a staged development where you require constant access through the existing common property, or a special rule might be required to determine that future air conditioners must be installed on the blind side of the unit. You might have arranged for special visitor parking that requires special rules. Or you might decide that the exterior colour scheme must adhere to a particular heritage colour scheme. It is up to you, but the time to do it is well before you begin selling your units. The time to set the rules is when you are the sole owner, and this means you should do it early on in the development's life.

The lot entitlements and lot liabilities of lot owners are set out in the plan of subdivision. 

  • "Lot entitlement" refers to your share of ownership of the common property and determines your voting rights. 

  • "Lot liability" represents the share of Owners Corporation expenses that each lot owner is required to pay. 

The developer determines these entitlements and liabilities at the time of subdivision. There are some developments where all lot entitlements and liabilities are the same. But there are equally as many where they can be quite different. It is important to understand what fees you will be paying compared to your neighbours.