14 Jul Changes to Owners Corporation Act 2006
The Owners Corporations Act 2006 was amended with the changes taking effect from 1 December 2021. A summary of some of the changes include the following.
- Creating five tiers of owners corporations in place of the existing prescribed owners corporation.
- Tier 1 owners corporations are required to have an audit undertaken.
- Tier 2 owners corporation are obliged to have review of their financial statements undertaken.
- An owners corporation may levy fees on a particular member for:
- damage to common property caused by a lot owner or a lessee if it is not covered by insurance or is less than the excess;
- an increase in insurance premiums caused by a wilful culpable or negligent act of lot owner, lessee or guest of the owner or lessee;
- for an insurance claim solely in respect of one lot the lot owner is responsible for the excess;
- if the owners corporation occurs and expense arising from the use of the lot and this expense is not accounted for in the lot liability set under the plan of subdivision.
- Tiers 1 and 2 are required to implement a maintenance plan for common property.
- For meetings and ballots
- quorum is based on the number of lots;
- altering how an interim special resolution may be passed;
- for an urgent matter, allowing a ballot to close earlier than 14 days.
- Any rain water falling on common property is part of common property and the owners corporation is the occupier of the common property for the purposes of the Water Act 1986.
- Allowing a manager to pass interim resolutions at a general meeting if no member or proxy attends the meeting.
- Committees:
- requiring an owners corporation of 10 or more lots to appoint a committee;
- the default maximum committee size of (7) seven members but may be up to 12 members if approved by ordinary resolution;
- subcommittee members have the same duties as a committee members.
- The power to dispose of goods abandoned on common property and the process to be followed.
- Insurance:
- public liability cover to be a minimum of $20 million (previously $10 million);
- requiring a valuation of all buildings insured by the owners corporation at least every five years;
- specifying changes to insurance obligations if there are multiple separate buildings in the development.
- Allowing litigation to be commenced without a special resolution if the amount claimed is within the civil jurisdiction of the Magistrates’ Court, currently $100,000.
- Allowing VCAT to make orders:
- to authorise a lot owner or owners to commence, prosecute, defend or discontinue a proceeding on behalf of owners corporations;
- requiring a lot owner to pay reasonable costs of the owners corporation in debt recovery proceedings.
- An owners corporation is no longer required to have a common seal.
Features of some of the changes are as follows.
Tiers
A tiered classification of owners corporations has been introduced which is based on the number of occupiable lots affected by it.
There are obligations imposed by classification in the appropriate tier.
The tiers are:
- Tier 1: more than 100 occupiable lots
- Tier 2: 51 and 100 occupiable lots
- Tier 3: 10 and 50 occupiable lots
- Tier 4: 3 and 9 occupiable lots
- Tier 5: 2 occupiable lots or a services only owners corporation
An occupiable lot is a lot intended for habitation and excludes lots not usually occupied such as car parks, storage cages or lockers or other lots not normally occupied.
If an owners corporation consists of less than 10 occupiable lots and more than 50 non-occupiable lots, the applicable tier is determined by the number of non-occupiable lots rather than the number of occupiable lots.
For an owners corporation consisting of all non-occupiable lots, such as a car park, the tier is based on the total number of lot lots.
A services only owners corporation is one which does not have any land or building designated as common property and:
- the initial owner of the subdivision arranged for the installation of common meters; or
- there are common unmetered supplies for one or more utilities.
There are obligation imposed on particular tiers regarding:
- preparation financial statements to comply with Australian Accounting Standards (AAS);
- audit of financial statements;
- review of financial statements;
- adoption of statutory maintenance plan
A summary is:
| Tier | Financial Statements | Adoption of a Maintenance Plan | ||
| Compliance with AAS | Audit | Review | ||
| 1 | Required | Required | Not applicable | Mandatory |
| 2 | Required | Optional | Required | Mandatory |
| 3 | Required | Optional | Optional | Optional |
| 4 | Not required | Optional | Optional | Optional |
| 5 | Not required | Optional | Optional | Optional |
Financial Matters
There are a number of changes affecting:
- fees which may be applied to members
- treatment of insurance excess
- preparation and presentation of financial statements
- audit and review of financial statements
It is possible to apply additional fees to some lots for items of expenditure which may be in the annual budget. This allows deviation from the apportionment of the annual budget on lot liability only.
Additional fees may be applied to a lot if:
- the owners corporation has incurred additional costs arising from the particular use of the lot by the lot owner; and
- annual fees based on lot liability would not adequately take account of those additional costs.
It would be a matter for an owners corporation to determine that lot liability is not the appropriate basis for apportioning the expense. This may require the engagement of a land surveyor or other specialist to provide advice.
Insurance
There may be a separate levy for insurance premium apportioned on lot entitlement rather than lot liability (which is used when the insurance premiums included in the annual budget).
Fees may be levied on a lot for the cost of an insurance excess or increased premium resulting from or attributable to a claim if the claim is caused by a culpable or wilful act, or gross negligence of:
- the lot owner;
- the lessee of a lot;
- the guest of a lot owner or lessee of the lot.
An example would be if a lot has a galvanised water supply which the owner is required to maintain and it is past the end of its service life. If the insurer increased the premium because of this, and the amount of the increase could be established with a degree of certainty, the owners corporation could apply a fee to the relevant lot or lots to meet the increase.
If there is damage caused to common property by a lot owner or lessee and:
- the damage is not covered by the insurance held by the owners corporation; or
- the cost of rectifying the damage is less than the excess of the policy held by the owners corporation
a fee may be applied to the relevant lot to meet the expense incurred.
An owner may be required to pay the excess on an insurance claim if it relates solely to one lot.
Financial Statements
The financial statements of tiers 1 to 3 must be prepared in accordance with the Australian Accounting Standards.
Audit and Review
A tier 1 owners corporation is required to have an audit of its financial statements undertaken after the end of each financial year.
A tier 2 owners corporation must have a review of its financial statements carried out. It may, but is not required to, have an audit carried out after the end of the financial year if approved by ordinary resolution.
All other owners corporations may resolve at the annual general meeting for the year end to have an audit or review carried out.
An audit is carried out by registered auditor or a member of a recognised accounting body who is authorised to undertake audits. A review must be carried out by a member of a recognised accounting professional body who has a current practising certificate.
The person providing the audit or review must not have any direct or indirect personal financial interest in the owners corporation and must provide a written report.
Meetings and Ballots
The quorum for a general meeting is now 50% of the number of lots, not votes, affected by the owners corporation. This applies to general meetings and ballots.
A person appointed as proxy for more than one lot owner have limits on their voting power:
- for less than 20 occupiable lots, the proxy holder may only vote in respect of one proxy held; or
- for more than 20 occupiable lots, the proxy holder may not exercise a vote for more than 5% of the lot owners;
- except
- if the appointing lot owners and proxy holder are members of the same family;
- the owner is the owner of multiple lots and appoints a proxy for each lot;
- the owners corporation manages the common property of a commercial, retail or industrial development.
Where no member or proxy of a member, attend a general meeting the manager may pass interim resolutions other than resolutions:
- affecting the contract of appointment of the manager;
- requiring expenditure greater than 10% of the annual budget;
- increasing the annual budget more than 10% of the previous budget.
By resolution the owners corporation may exclude or modify these powers.
Each lot has one vote at a general meeting or a ballot of members.
A ballot:
- closes 14 days from issue
- may close in less than 14 days if it is for an urgent matter.
There is now additional basis for an interim special resolution which is passed if:
- there is a quorum at the general meeting;
- there are no votes against the special resolution motion.
Common Property
Owner Altering Common Property
An owner must not repair, alter or maintain:
- common property; or
- a common service serving more than one lot
without the written consent of the owners corporation.
If an owner carries out works without consent, the owner may be required reinstate any affected common property or services.
If an owner is permitted to alter common property, that owner does so as an agent of the owners corporation and must comply with any approval which would be required if the owners corporation undertook the works. An example is if the owner is permitted by to undertake works, for which the owner pays, which would be a significant alteration to common property, it requires a special resolution even though the owners corporation is not contributing to the cost.
Maintenance Plan
Tier 1 and 2 owners corporations are now required to prepare and implement a maintenance plan. Owners corporations in tiers 3 to 5 may prepare and approve a plan but are not obliged to do so.
Previously only prescribed owners corporation were required prepare a maintenance plan but there was no obligation to approve it.
The maintenance plan is a 10 year program for the maintenance and replacement of the capital assets of the owners corporation which sets out:
- the current state of repair;
- when repair or replacement will be required;
- estimated cost of the repair or replacement;
- expected life after the repair or replacement has been carried out.
By having a maintenance plan an owners corporation can provide for future works with some certainty of funding.
A maintenance plan may be amended if approved by ordinary resolution.
If an owners corporation adopts a maintenance plan, an amount sufficient to fund the plan must be included in the annual fees (budget). An owners corporation may also determine other amounts to be transferred in the fund such as part of the accumulated surplus of the administrative coming fund.
Water
Any rain or other water which falls or flows on common property other than a waterway or a bore is taken be part of the common property. For the purposes of the Water Act 1989 the owners corporation is responsible for that water.
If there is unreasonable flow of water from the common property the owners corporation may be responsible. Any report of a water flow such as from a common property roof or a drainage backflow on the common property should be promptly reported and dealt with by the owners corporation.
Insurance
An owners corporation is required to insure the common property for:
- reinstatement sufficient to repair, replace or rebuild the property to a condition substantially the same; and
- public liability for common property with a minimum cover of $10 million..
If a building on a plan of subdivision is located above or below common property, a reserve or a lot, the owners corporation is required to insure all buildings for replacement value.
Changes
If a plan of subdivision has separate buildings and either:
- if one or more buildings is a multilevel development and each has its own owners corporation; or
- one of the buildings is a multilevel development with its own owners corporation
the owners corporation of the multilevel development must tnly take out insurance, including public liability for the buildings and common property for which that owners corporation is liable.
This allows an owners corporation with a mix of buildings some relief in effecting insurance. It will relieve the owners corporation of the obligation to insure those buildings which are not part of a multilevel development. However, it does require that the buildings are affected by separate owners corporations in order to operate. In the absence of separate owners corporations, it is necessary all buildings are covered by the insurance held by the owners corporation.
This can provide flexibility for larger developments which have a mix of building styles. However, it is likely to have limited application and most owners corporations not be affected by this change.
Valuation
All owners corporation, other than a services only owners corporation, must obtain a valuation of buildings required to be insured at least every five years.
This will require that the annual budget includes an amount sufficient to meet the cost of a valuation.
Public Liability
The current level of public liability cover required to be taken out is increased from $10 million to $20 million. This is the minimum amount and an owners corporation may have additional cover if it considers this is appropriate. The additional cover may be relevant for larger buildings or commercial properties.
Owners Corporation Rules
The Model Rules set out in the Owners Corporations Regulations 2018 apply to all owners corporations.
By special resolution an owners corporation may make, amend or revoke rules. A special resolution requires 75% of members of the owners corporation is in favour.
The rulemaking powers of an owners corporation have been extended to include the following.
Rules regulating external alterations or works to a lot for the purposes of:
- protecting quiet enjoyment during the works being carried out;
- protecting the structural integrity of buildings;
- ensuring the market value of other lots is not decreased by the works.
Where an owner wishes to install sustainability items on the exterior of the lot, any rule must not unreasonably prohibit the installation. Sustainability items include:
- a solar hot water system;
- solar energy panels;
- a roof colour of a particular solar absorption value.
A prohibition on aesthetic grounds only is unreasonable and is ineffective.
The Model Rules were amended to include rules in regard to:
- smoke drift in multilevel developments;
- an owner being obliged to provide a copy of any fire safety or evacuation plan, if it exists, to an occupier on commencement of the occupation of the lot;
- that an owners corporation may impose reasonable conditions on a owners or occupiers access to common property such as specifying operating hours of a swimming pool;
- controls in regard to sustainability equipment including that
- objections only on aesthetic grounds are not permissible;
- the location of any sustainability equipment must not interrupt other owners or occupiers enjoyment of a lot or impede access to a lot or common property;
- the owners corporation may impose reasonable conditions on the installation of sustainability equipment on the exterior of the lot provided these do not increase the cost of installation or reduce the impact of the sustainability item;
- the dispute procedure was amended to:
- require that the grievance meeting is held within 28 (previously 14) calendar days of the dispute committed attention the party;
- grievance meeting may be held in person or by teleconferencing;
- the grievance committee may elect to obtain expert evidence if it wishes.
In addition to owners and occupiers being liable for compliance with the rules, an occupier will now be responsible for a breach of the rules by a guest. There is an exception if the occupier has provided the guest with a copy of the rules in which case the onus is upon the occupier to prove these were provided. As the identity of a guest is usually unknown, this will provide the owners corporation with greater powers in regard to enforcing rules by holding the occupier liable.
Committees
An owners corporation consisting 10 (previously 13) or more lots must appoint a committee. If there are less than 10 lots a committee may be appointed.
By default a committee consists of between 3 and 7 members. A committee of up to 12 members may be appointed if this is approved by an ordinary resolution. A committee may not have less than 3 members.
Members of the committee may be a lot owner or a proxy holder on behalf of a lot owner if the owner gives consent in writing to the appointment.
A lot owner or their proxy may nominate for the committee in writing if not present the meeting or verbally the lot owner is present at the meeting.
A lot owner who has arrears owing at the date of the meeting is not eligible nor is their proxy if appointed.
If a lot owner is acting as a proxy for another member, and the proxy holder has arrears owing to the owners corporation, he or she is not eligible for election.
The obligations owed by the member of a committee now applied to a member of any subcommittee and are:
- act honestly good faith;
- exercise due care and diligence;
- act in the interests of the owners corporation;
- not make improper use of the position to gain an advantage, directly or indirectly, or for any person, including the member.
Abandoned Goods
Where goods have been abandoned on common property one remedy available to the owners corporation is:
- to serve a breach notice on the offender requiring removal of the goods;
- if not removed, the owners corporation may issue a final breach notice;
- if at the expiry of the final breach notice the breach has not been remedied, it can commence an application to the Victorian Civil and Administrative Tribunal for orders requiring the removal of the goods may be commenced.
Practical difficulties of a Tribunal application include:
- the identity of the person abandoning the goods may not be known;
- the cost and effort of a Tribunal proceeding may not be warranted if the goods have little value.
The amendments allow an owners corporation to dispose of goods abandoned on the common property if the procedure in the Australian Consumer Law and Fair Trading Act 2012 (ACLFTA) is complied with.
It is necessary to give notice to the person who abandoned the goods setting out:
- the owners corporation plan number and address;
- the description of the abandoned goods;
- where the goods may be collected;
- the date after which the goods will be disposed of if not collected;
- a statement the proceeds from the sale of the goods will be retained by the owners corporation.
The notice period required to be given is determined by value of the goods.
| Category | Owner Located | Owner Not Located | Motor Vehicle | Other Goods |
| Low value | 28 days | 60 days | Less than $1,000 | Less than $200 |
| Medium value | 28 days | 90 days | – | $200 to $5,000 |
| High value | 90 days | 180 days | $1,000 or more | More than $5,000 |
The owners corporation is required to determine the value of the goods in order to ascertain the appropriate category. For a motor vehicle it may be possible to refer to a publication such as the Red Book to establish the market value. Other goods may require that the committee set the value it considers appropriate.
Notice is served by giving it to the person who abandoned the goods, leaving at, or sending by post to, the person’s last known address.
There are number of provisions in the ACLFTA regarding locating the owner of goods. For an owners corporation this may present difficulties as it is based upon the owner being known such as when goods are left for storage or repair. For an owners corporation as there is no such requirement and the identity (and their location if not occupying a lot at the property) may be unknown.
Some goods such as cars or boats may be subject to a personal property security register. A search of the relevant register must be undertaken prior to the issue of the notice to dispose of goods. If there is an interest registered, notice is effective if served on the address recorded in the register.
Goods may be relocated to a safe place prior to disposal if:
- reasonable access to a lot or the common property is blocked; and
- the owners corporation has made a reasonable attempt to locate or communicate with the person who abandoned the goods in order to give the person a notice of intention to dispose of abandoned goods.
Good cannot be disposed of if there is a dispute regarding the goods and the owners corporation has commenced an application in the Tribunal regarding the goods.
Goods may be disposed of after the notice period has expired. The owners corporation may retain the funds. Any shortfall of funds from the sale is a debt due from the owner of the goods.
An owners corporation disposing of goods is not liable if the procedures set out in the cap owners Corporations Act and ACLFTA are complied with.
Unfortunately the amendments do not overcome the problem arising where the goods have been abandoned by an unknown person such as an occupier who vacates a lot with no forwarding address being provided or possibly a stranger to a property.