Function and powers

The owners corporation’s many functions include repairs and maintenance and creating and enforcing rules. Its powers may be delegated to a manager or chair or secretary. It may pass resolutions to lease or licence parts of the common property. The Owners Corporations Act lays out when rules may be made by special resolution. The Act also requires records be kept. Prospective buyers must receive Owners Corporation Certificates. Two-lot subdivisions are exempt many of the requirements under the legislation.

An owners corporation is a statutory body that can sue and be sued and is not affected by the Corporations Act 2001 (Cth). Its main functions include:

repairing and maintaining common property, fixtures and services;

ensuring that each owner keeps the externals of their lot in a state of good and serviceable repair;

financial management and administration, establishing budgets and special levies, and imposing interest;

creating and enforcing rules and dispute resolution procedures;

maintaining necessary insurance;

complying with governing legislation;

undertaking proceedings to recover debts;

providing owners corporations certificates;

using approved forms;

holding meetings;

maintaining an owners corporation register; and

record keeping.

In carrying out its functions and powers, an owners corporation must act honestly and in good faith and must exercise due care and diligence (s 5 OC Act). This places an onus on developers to rectify building defects and justify that the extent and cost of long-term management contracts is in the best interests of all owners.

Delegation

The note to section 10 of the OC Act states that, “[a]n owners corporation executes a document by the use of its common seal”. It does not say “must execute”, and it is arguable that an owners corporation can execute a document without using the seal. The OC Act allows the owners corporation to formally delegate any of its powers and functions to the committee, the manager, a lot owner, chairperson, secretary or an employee of the owners corporation (s 11).

The delegation of powers may be made by resolution or by instrument of delegation and must be made at a general meeting. It is unclear whether the instrument must be signed at that meeting. Thus, a delegation by ballot or committee delegations to the manager or a lot owner under section 102(1) at a committee meeting are prohibited.

Under section 11(5), in the absence of delegated powers the committee has all the powers and functions that may be delegated by the owners corporation, except in matters requiring a unanimous or special resolution.

Resolutions

An owners corporation may require that certain matters which are normally passed by an ordinary resolution must be dealt with only at a general meeting (s 82). These matters are prohibited from delegation or decision by ballot. The OC Act requires authorisation by resolution to use the common seal of the owners corporation (s 20).

To pass an ordinary resolution requires a majority of the votes that are available at a meeting where a quorum is present (i.e. greater than 50% attendance) (s 92(2)).

By special resolution (i.e. 75% of the total lot entitlements of all lots affected by the OC (s 96(a)), an owners corporation may lease or license the whole or any part of the common property to a lot owner or other person (s 14) or obtain a lease or licence over land (e.g. for additional parking) (s 15).

Legal proceedings must not be commenced unless authorised by special resolution (s 18(1)). This includes a counter-claim, an appeal, and an application to a court. A special resolution is not required for an application to VCAT to recover fees and other money or to enforce the rules of the owners corporation (s 18(2)).

A special resolution is not required to settle a legal matter and a committee resolution may be sufficient, unless that power is specifically reserved for a general meeting to determine. The better way to proceed is to obtain a special resolution to authorise a person or persons to make decisions.

Ballots and polls

Resolutions may be conducted by ballot instead of at a meeting. The requirements in sections 83 to 86 of the OC Act are quite specific regarding content, dates, and the appointment of proxies etc. Matters requiring an ordinary resolution must be passed by a majority of the votes returned by the closing date, provided that a quorum is achieved (s 86(2)(a)).

Voting at a meeting may be by show of hands (one vote for every lot whether the lot is a unit, car park bay or storage area) or in another prescribed manner (s 92(1)), or by poll based on one vote for each unit of entitlement (seeVoting”). A poll must be in writing and may be called before or immediately after a vote is taken (s 92). A voting slip per member recording the lot number, resolution number, signature and a yes or no vote is sufficient. Section 144(g) requires that voting papers and ballots be retained.

Rules and Model Rules

Schedule 1 of the OC Act specifies 10 categories under which the owners corporation may make rules by special resolution. An obligation to pay legal costs or fines goes beyond the scope of these provisions. Rules that prohibit short-stay accommodation are also beyond the scope of these provisions and are invalid. Only planning schemes can control the use of lots. If the owners corporation does not make any rules or revokes all of its rules, then the Model Rules under schedule 2 of the OC Regulations apply to it (s 139(2)). Current rules that are registered remain viable, provided they are consistent with the OC Act. Rules must not unfairly discriminate against a lot owner (s 140(a)), they bind owners and occupiers (s 141), they must be registered to have effect (s 142) and they must be given to owners (s 143).

If the Model Rules provide for a matter and the rules of the owners corporation do not, the Model Rules relating to that matter are deemed to be included in the Rules of the owners corporation.

Record-keeping

The OC Act prescribes which records the owners corporation must keep (s 144) and the duration (s 145). However, it omits mentioning important records (including warrantees and guarantees from builders, manufacturers and contractors, etc.) and other records that should be kept for life (such as architectural plans).

Records are available for inspection on request by a lot owner, mortgagee or purchaser at no charge, however, a reasonable fee may be charged for a copy (s 146). It is reasonable to assume that the term “purchaser” is a purchaser under contract and not a prospective purchaser, as this term is used elsewhere in the OC Act. It follows that privacy laws cannot be used as a reason to refuse an owner or purchaser access to these records, including the register of owners.

The owners corporation must maintain details of contracts, leases, licenses and other particulars in a register prescribed under sections 147 and 148. The register may be kept in an electronic or written form, however, care will be needed to exclude private information.

Owners corporations certificates

Any person may apply for an owners corporation certificate under section 151 of the OC Act. The certificate includes a copy of the Rules (including the Model Rules), advice and information to prospective purchasers found in schedule 3 of the OC Regulations, all resolutions made at the last annual general meeting, any other documents of a prescribed kind and a statement advising that further information on prescribed matters can be obtained by inspection of the owners corporation register. The certificate must issue within 10 business days after receipt of an application and fee (s 151(3)). Fees are indexed annually and vary according to the urgency of the request.

Certificates must be sealed with the owners corporation’s common seal (s 151(4)(b)). A resolution is not required under section 20 of the OC Act. Section 21(2A) allows the sealing of an OC Certificate to be witnessed by a registered manager or the chairperson.

The Sale of Land Act 1962 (Vic) requires the inclusion of an owners corporation certificate in every section 32 vendor’s statement (s 32F). A certificate is not required where the information within the certificate is provided in the vendor’s statement or if the owners corporation has not, in the previous 15 months, held an AGM and has not fixed any fees and has not held any insurance thereby rendering it inactive.

Note that section 150 of the OC Act makes it mandatory for the OC to provide copies of documents kept in the register upon payment of a reasonable fee.

Carrying on a business

As members have unlimited liability for any debts of an owners corporation, the owners corporation is not permitted to carry on a business (s 13 OC Act) but may participate in a registered company that carries on a business (e.g. a gym), as the business entity would be expected to have limited liability.

Two-lot subdivisions

A subdivision with two lots (a “two-lot subdivision”) – for example, two apartments or two villa units that usually share a common driveway – is exempt from compliance with many of the sections and divisions of the OC Act. For example, section 7(1) exempts a two-lot owners corporation from compulsory insurance of the common property. Note that this could leave owners personally liable for an injury on common property if public liability insurance on common property is not included in the lot owner’s individual policy of insurance.

Under section 11 of the Sale of Land Act 1962 (Vic), a person cannot sell a lot affected by an owners corporation unless the vendor or the owners corporation has a current insurance policy in accordance with the OC Act. This prohibition does not affect a two-lot subdivision.