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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.

Many people buy the unit or property of their dreams, only to find after they have settled on the property they are part of an Owners Corporation or Body Corporate and as a result have certain obligations to which they must adhere. One of these is the  payment of Owners Corporation fees.  

It is better to be aware of what is involved when you buy a unit in an Owners Corporation and have a better understanding of what an Owners Corporation is.  If you own a property within an Owners Corporation then you automatically become a member of that Owners Corporation and have responsibilities under the Victorian Owners Corporation Act.  

Owners Corporations are legal entities (this means they can sue and be sued). They also have legal responsibilities for a range of matters including financial management, insurance, record keeping, dealing with complaints and meeting procedures. Owners Corporations manage and administer the building and common property and its insurance requirements, and in order to carry out these activities they are able collect fees.  

If you are still not sure about what an Owners Corporation is, then you should check with a professional - either your solicitor, conveyancer, contact one of our many MBCM Strata Specialist offices.  

It is important that you read the Owners Corporation (OC) Certificate thoroughly when you are in the process of purchasing a property that is part of an Owners Corporation. You should always ensure that the Vendor's Statement (Section 32) is accompanied by an Owners Corporation Certificate. The Certificate contains important information about insurance, the total fees, the allocation of lot liability and lot entitlement for the unit/apartment/townhouse/shop/warehouse/factory or any other legal liabilities. 
 
Make sure you check the Owners Corporation Certificate for: 

  • The cost of living in the Owners Corporation (i.e. the fees you will be expected to contribute). 

  • The full range of information provided in the Owners Corporation Certificate, including insurance information. 

Make sure you check the s32 documentation in the contract of sale for:​

  • The details contained in the plan of subdivision. You should check the boundaries of the lot and common property, the location of easements and whether the allocation of lot entitlements and liabilities is fair and reasonable. 

  • The Owners Corporation rules (the rules under which the Owners Corporation operates). 

 

Contact the Manager 

 
Owners Corporations have to be managed. Most Owners Corporations are managed by a professional external management company. However, some Owners Corporations may have the necessary skills in-house and therefore decide to self-manage their property. The manager's name and contact details are on the Owners Corporation certificate.  

He or she will be able to provide more information about your particular Owners Corporation. 
 

Lot Liability and Lot Entitlement 

 
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. 
 

What is Common Property?


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. 
 

Your Obligations 

 

Owning a property in an Owners Corporation brings with it certain obligations. The main obligations of Owners Corporations are: 

  • Managing and administering the common property. 

  • Repairing and maintaining the common property, fixtures and services. 

  • Taking out and maintaining required insurance. 

  • Raising fees from the lot owners to meet financial obligations. 

  • Preparing financial statements and keeping financial records. 

  • Providing Owners Corporations certificates when requested. 

  • Keeping an Owners Corporation Register. 

  • Establishing a grievance procedure or adopting the grievance procedure in the model rules and implementing it. 

  • Ensuring compliance with Owners Corporations Act 2006, the Owners Corporations Regulations and rules. 

Fees 

 

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.

What constitutes an Owners Corporation?

An Owners Corporation is automatically created when a Plan of Subdivision containing Common Property is registered at Land Victoria. In other words, wherever there is common property, an Owners Corporation exists. It must also be set up or activated. Remember also that an Owners Corporation is a legal entity and can sue and be sued, so care must be taken when setting rules that might involve occupational health and safety and other issues. All Owners Corporations have statutory duties and powers as set out in the Owners Corporations Act 2006. If you own property affected by an Owners Corporation then you automatically become a member of that Owners Corporation and have responsibilities under the Act.

Timing

Owners Corporations should be set up by the developer early enough in the construction phase to ensure that everything is in place when the new owners purchase their units / homes. It is much easier at this stage because the developer is the sole owner and can make all the relevant decisions, decide on rules and sign any contracts. It is then transparent and clear for the incoming owners exactly what they are committing to and what their costs will be. This is the purpose of the OC Certificate.

Owners Corporation certificate

The Owners Corporation certificate is part of the vendor's statement or section32. It is the responsibility of the lot owner who is selling the property to ensure that the certificate is included in the section32. If an Owners Corporation is not set up then settlement of a property transaction cannot take place because an Owners Corporation certificate and other documentation must accompany the Section 32 so the conveyancer typically then has to search for someone who can assist them to urgently set up the OC. This is particularly important when you are progressively completing units in your development and you start selling them while you are still working on the rest of the construction. You may find yourself becoming distracted in trying to organize Owners Corporation Certificates when your mind should be on other things.

Insurance

Your Builder (Construction) Insurance ceases the moment your Certificate of Occupancy is signed. If you don't have strata insurance in place to cover the entire premises (including public liability insurance for the common property), your entire project could be uninsured. In general terms, an Owners Corporation is responsible for the following main insurances:
  • The main building and any outbuildings
  • Public liability
  • Workers Compensation
  • Voluntary workers cover
If you are unsure, then I strongly recommend you address your insurance questions to a strata insurance specialist.

Rules

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.

Lot entitlement and lot liability

'Lot Entitlement' refers to the owner's share of ownership of the common property and determines their voting rights (a lot for example, may have an entitlement of more than one vote). 'Lot Liability' represents the share of Owners Corporation expenses that each lot owner is required to pay. These entitlements and liabilities are determined by the developer at the time of subdivision. When determining the lot entitlement, the Owners Corporation must consider the value of each lot and the proportion that value bears to the total value of the lots affected by the Owners Corporation. When determining the lot liability, the Owners Corporation must take into account the amount that is just and equitable for the owner of each lot to contribute towards the administrative and general expenses of the Owners Corporation. The entitlement and liability of each owner is expressed in the plan of subdivision.

Budgets and fees

Your Owners Corporation will be required to pay annual fees to cover general administration, maintenance, insurance and other ongoing costs. As developer you may decide the Owners Corporation requires a maintenance fund, and therefore the annual fees must include contributions to that fund. Owners will be required to pay their share of annual and special fees according to lot liability that you will establish in the Plan of Subdivision. Your Owners Corporation budget will cover a wide range of potential future running expenses and includes insurance, gardening, repairs and maintenance, painting, public lighting and public water. To determine its fees for the financial year, your Owners Corporation will need to prepare a budget. Naturally, you should set the first budget. You should also set it early so you have time to consider any alterations.

Annual general meeting (AGM)

It is critically important, as well as required by law that you convene the inaugural AGM for your Owners Corporation. It is here that all the above items are finalized, locked in and registered. The inaugural general meeting is the first meeting of the Owners Corporation held during the initial period. This meeting is not classed as the first annual general meeting of the owners as it is conducted as if it were an extraordinary general meeting. Matters that must be determined at this meeting include insurance, contributions to the administration, the financial institution at which funds should be deposited, the executive committee (if required) and the common seal. Also discussed and agreed upon are the rules and other requirements.

Other Important considerations
  • Registering the Plan of Subdivision with the Titles Office
  • Registering an ABN
  • Ordering a Common Seal and Building Sign
  • Ensuring Occupancy Certificates
  • Creating Reports and Minutes Folders
  • Setting up a Cashbook and Trust Account for OC funds
  • Creating an Owners Corporation Register
  • Providing a list of Warrantees from tradesmen and ongoing maintenance contracts
 
Managers

Many Owners Corporations use professional managers to assist with finances, insurance, administration, meetings and maintenance functions. Larger Owners Corporations usually engage paid professional managers because complex legal, technical and people skills are required to manage the property. An Owners Corporation may appoint a manager to carry out any powers or functions it is able to delegate at a general meeting. The Owners Corporation usually delegates powers to a manager in a contract of delegation. This enables the manager to make decisions on behalf of the Owners Corporation. The appointment must be in writing or through a contract of appointment on the approved form. However, some Owners Corporations may be self-managed by a committee or a lot owner who has been delegated powers on a voluntary basis.

What makes for an effective Owners Corporation committee?

A strong committee can be of critical importance to the effective and harmonious operation of any Owners Corporation. In fact, OC's with 13 or more lots must elect a committee at each Annual General Meeting - smaller OC's may elect a committee if they choose, but it is not mandatory.

The fact is that it is difficult, particularly in larger Owners Corporations, to ensure that everyone attends meetings, to make decisions affecting everyone in the OC, to delegate responsibility for the numerous tasks and to ensure delivery of the many day to day functions required for the smooth operation of the OC.

A committee takes over these tasks on behalf of all the members of the Owners Corporation and becomes the voice of the OC. These tasks include:
  • Financial management
  • Property maintenance
  • Monitoring of activities and issues
  • Enforcing rules
  • Convening meetings
  • Communication
  • Complaint handling
The Owners Corporations Act 2006 enables committees to have direct responsibility for making and acting on decisions. The committee becomes the executive of the Owners Corporation and acts as the Owners Corporation between general meetings.

The committee is required to keep minutes of meetings and report to the Owners Corporation at every annual general meeting. This will ensure that the Owners Corporation has a complete record of all decisions made on behalf of the Owners Corporation.

Committee membership

A committee must have between 3 to 12 members, who must be lot owners or hold proxies for lot owners. There must not be more than one committee member from any one lot. Once elected, the committee members hold office until a new committee is elected.

Election of office holders

The committee must elect a chairperson and a secretary at a general meeting. Failure to fill either of these positions may mean the committee and its decisions may not be lawful. If an Owners Corporation has a committee, then the chairperson and secretary of the committee are also the chairperson and the secretary of the Owners Corporation.

Roles

The chairperson's role is to facilitate meetings, allow fair and open discussion, and create an environment where decisions can be made. The chairperson can convene an annual general meeting or a special general meeting, as well as arrange a ballot. The chairperson also has the casting vote at a general or committee meeting when the votes are equal. The secretary is responsible for managing correspondence and organizing meetings, as well as collecting and holding any OC records or documents.

Removing committee members

In general, it is wise to ensure that committee membership is on a rotating basis. This will ensure that the committee doesn't become too one-sided, too entrenched on certain positions and also ensures that there is a continual flow of fresh ideas and input. If required, lot owners can remove a committee, or a committee member by ordinary resolution (majority vote) at a general meeting.

Important!

It is important that committee members know their obligations and responsibilities as well as rights of owners and residents. All committee members must not ignore or avoid complaints and issues, and should always be concerned with a fair hearing for all unit owners. It is important to remain impartial at all times, and not to be concerned with those issues or just affect you or that you agree with. It is also important to be able to deal sensibly and maturely with even frivolous issues.

Complaints frequently occur in Owners Corporations, and managers and committees must have policies and procedures in place to manage the handling and resolution of such complaints and disputes. Disputes within an Owners Corporation are far more common than many people realise. They occur for a wide number of reasons, generally involving noise, parties, parking and pets. Sometimes disputes arise over who is responsible for certain maintenance or whether it is an individual owner’s responsibility for something the entire community should have to shoulder. It is the responsibility of all owners to hold a regular annual meeting at which decisions are made on how to manage disputes.
 

Basic Communication

It is both common sense and basic courtesy that Owners Corporations should have a policy on how day-to-day communications are carried out between lot owners and the Owners Corporation. People who fail to obey rules sometimes simply do not know the rules. Your Owners Corporations should ensure that all lot owners and tenants are given a copy of the rules before they move in. The Owners Corporation should encourage neighbours to talk about their concerns to resolve disputes.


Enforcing Rules

If owners or tenants fail to observe rules, the Owners Corporations Act 2006 sets out a process to help Owners Corporations deal with grievances. This process has three steps:

  • Internal dispute resolution

  • Conciliation through Consumer Affairs Victoria

  • Applications to the Victorian Civil and Administrative Tribunal (VCAT)

An Owners Corporation must follow its internal dispute resolution process before requesting conciliation by Consumer Affairs Victoria or making an application to VCAT.


Communication with neighbours

Tell the other person about your concern. Simply talking to your neighbour about the issue may lead to a solution. You could also make a written request for the matter to be discussed at the next meeting of the Owners Corporation or committee.


Internal dispute resolution

Your Owners Corporation must have procedures to help its members and people living in the property deal with grievances without resorting to legal action. It should set out:

  • Information about who to contact if there is an issue or concern

  • Rules detailing the grievance procedure

  • Directions about where to get information

  • How to record the issue or the breach of rules

  • How to notify your Owners Corporation committee or manager of a problem

  • How to raise an issue at an Owners Corporation or committee meeting

  • Formal complaint procedures

  • How to nominate a third party to help a dispute. Your Owners Corporation must follow its internal procedure before asking Consumer Affairs Victoria to conciliate or applying to VCAT.


Your Owners Corporation can either:

Use the Model rule (Dispute Resolution) set out in the Owners Corporations Regulations 2007 Develop its own rules for handling grievances
  
If your Owners Corporation makes its own rules for grievances then those rules must be recorded at Land Victoria to be enforceable. The proposed grievance procedure rules must not conflict with Act, regulation, or natural justice.


Making a formal complaint

A formal complaint about a lot owner, an occupier or an Owners Corporation manager allegedly breaching the Owners Corporations Act 2006, Owners Corporations Regulations 2007 or the rules, must be in writing to the Owners Corporation in an approved Owners Corporation Complaint Form. If the problem is not resolved If the problem is not resolved within 28 days, the Owners Corporation can extend the deadline for action. The Owners Corporation can also issue a final notice, in writing in the approved Final Notice to Rectify Breach. Your Owners Corporation must first try to resolve the matter through an internal grievance procedure before applying to VCAT.


Complaints to Consumer Affairs Victoria

You do not have to use the Owners Corporation grievance procedure if you are a lot owner, occupier or manager. You can make your complaint to Consumer Affairs Victoria they but may decline to consider your matter if you have not used the internal resolution process.


Applying to the Victorian Civil and Administrative Tribunal (VCAT)

The Owners Corporation must follow its internal grievance procedure before making an application to VCAT. The tribunal can take a complaint from:

  • A manager or former manager

  • A lot owner or former lot owner

  • The Owners Corporation

  • The occupier or former occupier of a lot

  • A mortgagee of a lot

  • An insurer under a policy taken out by the Owners Corporation

  • The Director of Consumer Affairs Victoria.

 
What can VCAT do?

The tribunal can impose penalties for breaches of rules and make a wide range of other orders. These include:

  • Ordering someone to do something

  • Imposing a penalty of $250 for breaches of rules

  • Requiring the payment of money owed, as damages or restitution

  • Varying or ordering a term of a contract as void

  • Appointing or removing a manager

  • Appointing or removing a chairperson or secretary

  • Appointing an administrator

Inactive Owners Corporations

Sometimes an owner of a unit or apartment decides to put their property on the market, only to be told by the solicitor or conveyancer that the property "won't be able to settle" or "there are risks associated with settlement" because it is in an Owners Corporation that has never been 'set-up'.

What is the difference between an inactive Owners Corporations and one that has simply not been set-up?
The Act defines an inactive Owners Corporation as one that in the previous 15 months has not:
  • Had an annual general meeting
  • Fixed any fees
  • Held insurance.
All three of these requirements must be met for the Owners Corporation to be considered inactive, however in practice it is extremely rare. Whist it is common not to have held an annual general meeting or to have fixed fees, almost always they will have some form of insurance. So in practice, most of the affected Owners Corporations have simply never been 'set-up'.

How can this happen?

Generally it is because of two main reasons. For some of these properties, at some time in the past, the conveyancer handling a prior sale of the property may not have been as aware of the Owners Corporation Act as perhaps they should have been, and so the sale slipped through. Secondly, the Owners Corporation may have originally been set up, but the legally required documentation has never been properly maintained and Annual General meetings have never been held, meaning the Owners Corporation has lapsed.

The introduction of the Owners Corporation Act 2006 and subsequent amendments in Victoria to it, as well as to the Sale of Land Act brought with them a large number of changes to Owners Corporations law.

Whilst the amendments mean it is no longer compulsory to attach an Owners Corporation certificate to a vendor's statement, it is still highly recommended that a certificate be provided. This is because the same information currently set out in the Owners Corporation certificate must now be provided by a vendor in the Section 32 vendor's statement, and vendors run the risk of purchasers rescinding their contracts if they do not provide all information that is normally provided in the Owners Corporation certificate.

Therefore, it is strongly recommended that vendors still provide Owners Corporation certificates to ensure vendors are aware of all information that is required to be disclosed.

Your Options

So if you find yourself in this situation, you have a couple of options:
  • Either attempt to set it up yourself
  • Seek help from a professional Owners Corporation Manager

There are a large number of things to do if you wish to set up the Owners Corporation yourself. Because it is a Corporation, you will also be required to apply for an ABN (Australian Business Number) as well as a Tax File Number. You will also need to set up an Owners Corporation Register, open a special bank account and arrange Owners Corporation common seal as well as to notify Land Victoria of subsequent changes to Owners Corporation contact details. You will also be required to establish who will manage the Owners Corporation.

What is lot liability and lot entitlement?

What is a lot?


A "lot" is that part of land, buildings and airspace on a Plan of Subdivision that can be separately owned and sold. Most usually, lots do not include any of the common property, but they can include things like car spaces and storage areas (including spaces elsewhere in the property). The developer determines Lot Entitlement and Lot Liability at the time of subdivision.


What is lot liability and lot entitlement?


Every Owners Corporation has a Plan of Subdivision, and that plan will set out what is called "Lot Entitlement" and "Lot Liability" of each lot. It will also show the total lot entitlement and lot liability for all the lots on the Plan of Subdivision.

Lot Entitlement reflects the lot owner's share of ownership in the Owners Corporations assets (which primarily comprise the common property). Lot entitlement also determines voting rights at Annual General Meetings and other meetings, which may be called. Lot Liability is the proportion of the Owners Corporation expenses that are to be carried by any particular lot. It is effectively the limit of a lot owner's liability for the liabilities of the Owners Corporation.

Lot liability is reflected in the quarterly or annual fees that are payable by that particular lot.

It is quite usual to find that lot entitlement and lot liability for a particular lot is the same. Often (particularly if the lots are all the same size and have equal access to common property) lot entitlement and lot liability is the same across the whole owners corporation (but not always!!).

Lot entitlement reflects the value of the lot as a proportion of the total value of all the lots within the Owners Corporation. Lot liability on the other hand, is usually based on an equitable sharing of expenses of the Owners Corporation.


How is lot liability determined?


The Strata Community Australia (SCA) recommends that a 'user-pays' system for services provided by the Owners Corporation is used to determine Unit of Liability, by a licensed surveyor. The Strata Community Australia (SCA) recommends that in determining the value, four tests be satisfied:

  • Set as Equal unless it can be demonstrated that it is just and equitable for there to be inequality. E.g. if all the same type of residential apartment, otherwise choose 2,3, or 4 below.

  • Set based on Area unless it can be demonstrated that type of use has bearing. e.g., All residential where the type of lot is much larger than the others or is commercial.

  • Set based on Occupancy where the number of occupants has greater bearing that area.eg. sustainable measures, common utilities.

  • Set based on use (area x factor). E.g. Develop a factor applied to area for restaurants, office, retail, heritage, sustainability etc.

What can an Owners Corporation make rules about?

Every Owners Corporation must have rules for the control, management, use or enjoyment of common property and lots.

If a new Owners Corporation elects not to create its own set of rules, a default set of rules, called the 'Model Rules' apply, although the Owners Corporations Act does give an Owners Corporation power to make new rules or to revoke or change existing ones (these are called 'Special Rules'). If you do choose to make your own rules, be aware that they must comply with the requirements of the Owners Corporation Act 2006 and the Australian Consumer Law and Fair Trading Act 2012.

They must not conflict with any other law, regulation or legal obligation; for example, privacy and anti-discrimination laws and should help to clarify everyone's rights and responsibilities and reduce conflict within your Owners Corporation.

A rule must be made for the purpose of the control, management, administration, use or enjoyment of the common property or of a lot.

Specifically, Owners Corporations can make rules for:
  • Health Safety and Security
  • Use of Common Property
  • Use of and Works to Lots
  • Design of Lots
  • Management and Administration
  • Behaviour of Persons
  • Vehicles and Parking
  • Committees and Sub-Committees
  • Dispute Resolution
  • Notices and documents
  • Use of the common seal.

If an Owners Corporation does decide to prepare its own rules (or make new rules) care must be taken not to unfairly discriminate against a lot owner or occupier of a lot, nor be inconsistent with or create limits to a right or which avoids an obligation under the Owners Corporations Act and its regulations. For example, a rule cannot prevent children from living in a lot (unless it is a retirement village) or restrict the use of a guide dog.

Rules must be registered

All Owners Corporation's rules must be registered with Land Victoria. If they are not, they will be void and unenforceable and the model rules will apply.

Communication

Owners Corporations should have a policy on how day-to-day communications are carried out between lot owner and the Owners Corporation. People who fail to obey rules sometimes simply do not know the rules. Your Owners Corporations should ensure that all lot owners and tenants must be given a copy of the rules before they move in.

Communication is often the best way to avoid disputes, and neighbours should be encouraged to talk about their concerns.

Enforcing Rules

If owners or tenants fail to observe rules, there are several steps, which can be followed to attempt to resolve issues. If appropriate, the Owners Corporation could send a letter highlighting a particular rule to residents, asking for compliance.

Discuss your concerns about breaches of the rules with the person involved and the manager or the committee. The manager or the committee may act on your behalf. If the failure to observe a rule continues there are further steps, which can be taken, culminating with an Owners Corporations applying to VCAT to enforce rules.
Under Sub section 32 (5) of The Sale of Land Act 1962 (Vic), an Owners Corporation Certificate must accompany the Vendor's Statement (Section 32) of the Contract of Sale for the sale of a lot (or Unit) in a Strata Corporation. 

Why do you need an Owners Corporation Certificate? 
 
If the vendor fails to supply all the information required to be supplied in the statements or certificates the purchaser may rescind (invalidate or walk away from) any contract for the sale of the land. The Certificate provides a wide range of important information for anyone interested in purchasing your unit. It must include:
  • The current quarterly or annual fees for the lot
  • The date which fees have been paid to 
  • The total of any unpaid fees or charges for the lot
  • The date and amounts of any special levies or fees which have been raised and when they are payable
  • Any additional maintenance or work about to be performed not included in the fees and levies
  • Details of insurance coverage
  • Funds held
  • Any liabilities, agreements, leases or licences affecting common property
  •  Details about orders and notices served in the past 12 months
  • Any legal proceedings in progress and any circumstances likely to lead to proceedings
  • Details of any external professional manager engaged
  • The total lot entitlement and liability
Attached to the certificate must be:
  • A copy of resolutions made at the last AGM
  • A copy of the Owners Corporation rules registered at Land Victoria and 
  • A prescribed Statement of Advice and Information for Prospective Purchasers and Lot Owners. 
You can tell a lot from the Owners Corporation Certificate. It is very important that the information contained in the Owners Corporation Certificate is accurate. The OC Certificate will tell a prospective purchaser a lot about your property. If there are significant issues within an Owners Corporation unit that you are looking to purchase, those issues should be reflected in the OC Certificate. So both vendor and purchaser should inspect the Certificate carefully and ask questions if anything is unclear. Remember that an OC Certificate is accurate only to the day it is prepared, so it should be as up to date as possible. 
 
How much is the fee? 
 
As of October 2014, there is a scale of fees, depending on how quickly you want the certificate and how many you require. You need the OC Certificate to accompany the Section 32 vendor's statement to sell your property.

The value of Fee Units and Penalty Units changes each year on 1 July. 

Authorisation
 
The certificate should be authorised by a person delegated to prepare the certificate. This is usually the manager of the Owners Corporation. The Certificate must be signed, dated and accompanied by the delegated manager's printed name. It must also carry the common seal. 

If you are buying or selling
 
Remember if there are fees owing or any other debts associated with the unit, these debts stay with the unit! You don't want to find yourself buying a unit with outstanding debts. As vendors' certificates (Vendor Statement Section 32) are sometimes prepared many months before the sale of the property, buyers should either:
  • Ask for a new OC Certificate before settlement
  • Make a time to inspect the Strata Corporation register and records, free of charge. 
If you intend to sell your property, you must include Strata Corporation Certificate and accompanying documents in the vendor's statement or section 32. As of October 2014, you (or your agent) are now required to provide the required "Due Diligence Checklist" to potential purchasers. 

Keep records Your Strata Corporation manager should keep copies of all Strata Corporations Certificates it has issued.
What can an Owners Corporation make rules about?
 
Every Owners Corporation must have rules for the control, management, use or enjoyment of common property and lots. If a new Owners Corporation elects not to create its own set of rules, a default set of rules, called the ‘Model Rules’ apply, although the Owners Corporations Act does give an Owners Corporation power to make new rules or to revoke or change existing ones (these are called ‘Special Rules’). If you do choose to make your own rules, be aware that they must comply with the requirements of the Owners Corporation Act 2006 and the Australian Consumer Law and Fair-Trading Act 2012. They must not conflict with any other law, regulation or legal obligation; for example, privacy and anti-discrimination laws and should help to clarify everyone’s rights and responsibilities and reduce conflict within your Owners Corporation. A rule must be made for the purpose of the control, management, administration, use or enjoyment of the common property or of a lot. Specifically, Owners Corporations can make rules for:
  • Health Safety and Security
  • Use of Common Property
  • Use of and Works to Lots
  • Design of Lots
  • Management and Administration
  • Behaviour of Persons
  • Vehicles and Parking
  • Committees and Sub-Committees
  • Dispute Resolution
  • Notices and documents
  • Use of the common seal.
If an Owners Corporation does decide to prepare its own rules (or make new rules) care must be taken not to unfairly discriminate against a lot owner or occupier of a lot, nor be inconsistent with or create limits to a right or which avoids an obligation under the Owners Corporations Act and its regulations. For example, a rule cannot prevent children from living in a lot (unless it is a retirement village) or restrict the use of a guide dog.

Rules must be registered
 
All Owners Corporation’s rules must be registered with Land Victoria. If they are not, they will be void and unenforceable and the model rules will apply.

Communication
 
Owners Corporations should have a policy on how day-to-day communications are carried out between lot owner and the Owners Corporation. People who fail to obey rules sometimes simply do not know the rules. Your Owners Corporations should ensure that all lot owners and tenants must be given a copy of the rules before they move in. Communication is often the best way to avoid disputes, and neighbours should be encouraged to talk about their concerns.

Enforcing Rules If owners or tenants fail to observe rules, there are several steps, which can be followed to attempt to resolve issues. If appropriate, the Owners Corporation could send a letter highlighting a particular rule to residents, asking for compliance. Discuss your concerns about breaches of the rules with the person involved and the manager or the committee. The manager or the committee may act on your behalf. If the failure to observe a rule continues there are further steps, which can be taken, culminating with an Owners Corporations applying to VCAT to enforce rules.

What are rules in an Owners Corporation?
 
Rules are needed to govern the conduct of its members, and occupiers and for the control, management, and for use and enjoyment of common property and lots. The Owners Corporation decides the rules at the time that the Owners Corporation is set up, and must be registered with Land Victoria. There are many occasions where the Owners Corporation might establish special rules. For instance a special rule might be required to determine the location of future air conditioners (i.e. no compressor units in a visible location). There might be special rules for visitor parking spaces. Or the Owners Corporation might decide that the exterior colour scheme must adhere to a particular heritage colour scheme.

Model Rules
 
However, a default set of rules applies if the Owners Corporation does not make its own rules. These default rules are called Model Rules, and they are outlined in the Owners Corporation Regulations (2007). All lot owners and tenants must be given a copy of the Rules before they move in.

What do the rules cover?
 
Typically, the Rules cover most day-to-day issues like parking, noise and pets, but they also relate to a much wider range of things such as:
  • Health, Safety and Security
  • Committees and Sub Committees
  • Management and Administration
  • Use of Common Property
  • Garbage Disposal
  • Use of and Works to Lots
  • Design and Colour Schemes of Lots
  • Behaviour
  • Dispute Resolution

Who do the rules apply to?
 
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.
Owners Corporations can apply to VCAT to enforce rules, but it is always preferable to ensure a policy is in place to encourage effective communication between neighbours. Good communication is often the best way to prevent disputes and your Owners Corporation should encourage neighbours to talk about their concerns to assist in resolving disputes. An Owners Corporation must follow its internal dispute resolution process before requesting conciliation by Consumer Affairs Victoria or making an application to VCAT.

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).

For various reasons, you have decided to set up your non-functioning Owners Corporation.

You will already be aware that if you live in a unit, flat or townhouse where there is common property, you most probably live in an Owners Corporation. You can confirm this by checking whether a Plan of Subdivision exists (or downloading one from www.landata.vic.gov.au).

There are a large number of things to do if you wish to set up the Owners Corporation yourself. Here is a comprehensive list.
 

The Action List for Set-Up and Activation 


Locate your plan of subdivision. If you don't have a copy, you can get one from Land Victoria. The plan of subdivision provides a wealth of information, which you will need to start the process. It will give you: 

  • Your Owners Corporation number 

  • An indication of which are the 'lots' and which is the common property 

  • A schedule outlining the lot entitlements and lot liabilities 

  • You will need to register your Owners Corporation with Land Victoria. 

  • Notify Land Victoria of any changes to Owners Corporation contact details, which will include information about who is to manage the Owners Corporation. 

  • You should check insurances for the Owners Corporation (which will include the minimum $10 million of Public Liability insurance for the common property which is required by law). As a comprehensive insurance policy taken out with one insurer is by far the safest, and generally the most cost-effective option (rather that individual insurance policies), you should obtain quotations for Building and Public Liability insurances. 

  • Obtain quotations for all necessary maintenance contracts & other services. 

  • Register for an Australian Business Number (ABN) and Tax File Number (TFN). 

  • Arrange Owners Corporation Common Seal. 

  • Prepare an Owners Corporation budget, incorporating all the projected expenses, including allowances for gardening, future repairs and maintenance and any other possible expenses. 

  • Assess lot entitlements & liabilities under the Plan of Subdivision and set fees accordingly. 

  • If you are a prescribed Owners Corporation, prepare a 10-year Maintenance Plan. 

  • Prepare for, provide Agenda and conduct the inaugural Annual General Meeting with all owners. 

  • Prepare Minutes of this AGM. 

  • Establish Grievance Procedure for dispute resolution. 

  • Prepare Model Rules (or Special Rules) and ensure registration of Rules with Land Victoria. 

 

Other things to do 


For a new development, the initial owner should call the Owners Corporation's first meeting within six months of registering the plan of subdivision at Land Victoria. To hold this first annual general meeting, send out a notice at least 14 days before the scheduled date to all members. 
 
If you are reactivating an existing Owners Corporation, you should obtain the original documentation from the initial owner or former Owners Corporation manager. If there is no documentation, you should prepare for an Inaugural Annual General Meeting and proceed from there. 
 

After the first annual general meeting 


After activating your Owners Corporation, you may need to open a bank account or take out insurance in its name. To do this you will have to provide evidence that the Owners Corporation is a legal entity. 

Your Owners Corporation is considering or has decided to terminate your current manager's contract. From our experience, this is one of the most commonly asked questions that we deal with.

The first thing you need to know is that your current manager's Contract of Appointment is in fact a legal contract - it will specify that you need to give at least 28 days' notice of your intention to terminate the contract.

The minimum notice of 28 days must be before the expiry date of the contract. This contract is a legally binding document between the two parties and cannot be terminated before the expiry date unless mutually agreed by both parties. All contracts will outline conditions of termination.

If you fail to give notice to terminate the Contract of Appointment in sufficient time, the Contract of Appointment will automatically roll over for a further 12 months at the expiry date.

Who makes the decision?


The decision to terminate your manager's Contract of Appointment is a decision of the Owners Corporation and not a decision of an individual member or committee. Usually the committee decide that a change of management is required - the chairperson and/or secretary can then convene a Special General Meeting (SGM), and issue a notice to all members of the Owners Corporation outlining the motion to terminate the current Contract of Appointment with the current manager.

The Owners Corporation, by ordinary resolution, can terminate the Contract of Appointment. An ordinary resolution requires at least 50% of all lot entitlements voting in favour.

Most Contracts of Appointment coincide with the date of the AGM, so action is required well before attendance at the Annual General Meeting (AGM). Action can be via an SGM or postal ballot.

It is important to recognise that most AGM's and SGM's held by Owners Corporations fail to achieve a quorum (50% of owners) either physically attending or by giving their proxy. Therefore, any decision made to terminate the current manager will only be an interim decision and a period of 28 days must pass with not less than 25% of owners objecting to the decision for the decision to become final.

Notices of an AGM or SGM must be sent to all owners at least 14 days prior to the meeting date. The Owners Corporation, Chairperson or Secretary may call an AGM or SGM. Any lot owner may also call an SGM whose lot entitlements total at least 25% of all lot entitlements.

Important!


Not allowing sufficient time to take all the necessary legal steps could mean you are locked in with a manager you are unhappy with for a further 12 months.

If there is a valid contract, the manager may need to be paid out for the remainder of the contract. As a general rule the manager would only be entitled to make a claim for loss of profits, not the full annual fees.

The OC Manager's role

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.
The simple answer is yes. Owners Corporation rules still apply to two-unit developments and they are subject to the Owners Corporations Act 2006. There are, however, a number of exclusions for two-unit developments, and these are covered below. An Owners Corporation is automatically created when a Plan of Subdivision containing Common Property is registered at Land Victoria.
 
Common Property may include, for example, gardens, passages, walls, pathways, driveways, lifts, foyers and fences. An Owners Corporation (formerly body corporate) manages the common property of a residential, commercial, retail, industrial or mixed-use property development. The Plan of Subdivision shows the parcels of land that can be sold separately. These are called ‘lots’. Lot owners are the members of the Owners Corporation.
 
Two-Unit Owners Corporations are legal entities. They are also 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
Just like in larger Owners Corporations, in order to sell a unit in a two-lot subdivision requires an Owners Corporation Certificate to accompany the Section 32 Vendor’s Statement.
 
Basic list of differences for two-lot owners corporations
Whilst all Owners Corporation have a range of legislative obligations, two-unit Owners Corporations are exempt from many of the requirements placed on larger Owners Corporations, such as:
  • Most two-unit Owners Corporations are usually self-managed
  • No requirement for Notices of Fees. Generally, the owners of both units work with each ther to determine the level of fees required to pay for the management of the Owners Corporation, and how and when those fees should be collected.
  • Simpler procedures for meetings and decision-making. Meetings are usually more casual.
  • No requirement for keeping records or an Owners Corporation register.
  • Two Unit Owners Corporations are also exempt from the stringent insurance requirements; however, it is strongly recommended that both units are covered by comprehensive strata insurance which usually includes a minimum of $10 million Public Liability insurance over the common property.
For a comprehensive list of differences
(Refer Section 7, Owners Corporation Act 2006)
Two-lot subdivisions are exempt from the following requirements:
  • Power to bring legal proceedings
  • Requirements for notices of fees
  • Requirements for final notice
  • Accounts and audits
  • Maintenance Plan and maintenance fund
  • Reinstatement and replacement insurance (although strongly recommended)
  • Public Liability insurance (although strongly recommended)
  • First meeting of Owners Corporation
  • Annual General Meeting
  • Procedure at general meetings
  • Unanimous resolutions
  • Special resolutions
  • Keeping records and an Owners Corporation register
  • Procedures for meetings and decision-making.
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.

A developer works with a registered surveyor to draw up a Plan of Subdivision which shows the lots, and the remainder is known as 'common property'.The plan of subdivision shows the parcels of land that can be sold separately. As described above, these are called 'lots'. More than one Strata Corporation can be created in a subdivision of land or buildings. A Strata Corporation is automatically created when this Plan of Subdivision containing Common Property is registered at Land Victoria. Owners of the lots become members of that Strata Corporation.

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.

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.
Strata Corporations also must be managed. Usually this is by an external professional manager, but sometimes they are self-managed by an owner who volunteers for this responsibility (and who must not receive payment for providing this service).

If an external professional manager is chosen, this manager (and their company) should be a member of the professional body, Strata Community Australia (SCA). They must be registered with the Business Licensing Authority (BLA). This manager should be dedicated to the profession, not someone who is doing it as an adjunct to another business.

Who makes the rules?

What are rules in an Owners Corporation?

Rules are needed to govern the conduct of its members, and occupiers and for the control, management, and for use and enjoyment of common property and lots.

The Owners Corporation decides the rules at the time that the Owners Corporation is set up, and must be registered with Land Victoria.

There are many occasions where the Owners Corporation might establish special rules. For instance, a special rule might be required to determine the location of future air conditioners (i.e. no compressor units in a visible location). There might be special rules for visitor parking spaces. Or the Owners Corporation might decide that the exterior colour scheme must adhere to a particular heritage colour scheme.

Model Rules

However, a default set of rules applies if the Owners Corporation does not make its own rules. These default rules are called Model Rules, and they are outlined in the Owners Corporation Regulations (2007). All lot owners and tenants must be given a copy of the Rules before they move in. What do the rules cover?

Typically the Rules cover most day-to-day issues like parking, noise and pets, but they also relate to a much wider range of things such as:

  • Health, Safety and Security

  • Committees and Sub Committees

  • Management and Administration

  • Use of Common Property

  • Garbage Disposal

  • Use of and Works to Lots

  • Design and Colour Schemes of Lots

  • Behaviour

  • Dispute Resolution


Who do the rules apply to?

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

Owners Corporations can apply to VCAT to enforce rules, but it is always preferable to ensure a policy is in place to encourage effective communication between neighbours.

Good communication is often the best way to prevent disputes and your Owners Corporation should encourage neighbours to talk about their concerns to assist in resolving disputes.

An Owners Corporation must follow its internal dispute resolution process before requesting conciliation by Consumer Affairs Victoria or making an application to VCAT.

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