Are you ready for the changes to the Owners Corporations Act? August 18, 2021

Major amendments to the Owners Corporations Act in Victoria will come into operation in late 2021, imposing new rules and responsibilities on owners corporations

On 1 December 2021, major changes to the Victorian Owners Corporations Act will come into force.  If the amendments affect your owners corporation (OC), you will need to understand their implications and effect. Use this handy summary to learn more about the key amendments.

How can an owners corporation achieve more flexibility when entering into contracts and agreements?

Currently, OCs can only execute documents by affixing the common seal on the document. This requires the approval of the members of the OC.

This cumbersome process will be no longer required from 1 December 2021. The new, streamlined process will allow OCs to execute documents in their own name or on behalf of their members. Also, two owners of separate lots will be allowed to execute a document on behalf of the OC.

Existing OCs must agree by ordinary resolution to destroy the common seal. It will allow the OC to execute documents in accordance with the amendments.

Do the amendments allow time for an owners corporation to implement the new maintenance plan requirements?

The amendments implement a five tier system:

• Tier 1 – The OC has 100 or more occupiable lots and is not a services only OC
• Tier 2 – The OC has 51 to 100 occupiable lots and is not a services only OC
• Tier 3 – The OC has 10 to 50 occupiable lots and is not a services only OC
• Tier 4 – The OC has 3 to 9 occupiable lots and is not a services only OC
• Tier 5 – The OC has a 2-lot subdivision, or is a services only OC

The amendments will require Tier 1 and 2 OCs to prepare and approve a maintenance plan. Previously, this obligation only applied to OCs with more than 100 lots, or annual levies above $200,000.

A tier 1 OC has 12 months from 1 December 2021 to implement a maintenance plan. A tier two OC has 24 months.

What additional powers will owners corporations have from 1 December 2021?

The amendments will give OCs additional powers including:

1. The ability to make rules about proposed renovations or alterations to the external appearance of a lot to:

• Protect the quiet enjoyment of all other lots and the common property;
• Protect the structural integrity of any building on the plan of subdivision; and
• Prevent a decrease in the market value of any other lot

However, rules cannot unreasonably prohibit the installation of a sustainability item on the exterior of a lot

2. Allowing OCs to dispose of abandoned goods on common property, provided certain requirements are met
3. The ability to levy an additional annual fee on a lot owner in certain circumstances
4. The ability to levy a fee on a lot owner to cover the cost of:

• An excess amount or an increased premium resulting from an insurance claim, if such claim is caused by:
  • A lot owner
  • A lot owner’s lessee
  • A guest of a lot owner
  • A guest of a lot owner’s lessee
• Damage to common property where the damage is caused by a lot owner or a lot owner’s lessee. Either the damage is not covered by insurance or the cost of the damage is less than the excess amount

What are the additional responsibilities of owners corporations?

The amendments impose additional responsibilities on each OC tier regarding their records and financial statements.

For example, a tier one, tier two or tier three OC must prepare annual financial statements in accordance with the Australian Accounting Standards and present the statements at the general meeting of the OC. In contract, a tier four OC is only required to prepare annual financial statements for annual fees that are levied.

There are also additional responsibilities regarding appointment of managers and implementation of maintenance plans, however such responsibilities vary depending on the OC tier.

How will it be easier for an owners corporation to commence legal proceedings?

Currently, an ordinary resolution must be passed for an OC to commence legal proceedings. But from 1 December 2021, the amendments will require the OC to pass a special resolution to commence legal proceedings (other than for levy recovery or breach of rules). This change will make it easier for OCs to start legal proceedings, particularly when the OCs have a significant number of lot owners.

Should the owners corporation commence legal proceedings in VCAT or the Magistrates’ Court?

From 1 December 2021, the Victorian Civil and Administrative Tribunal (VCAT) will have additional powers. For example, VCAT will be able to order a lot owner to pay the OC’s reasonable costs in recovering unpaid amounts from the lot owner (not including legal costs).

The amendments will also give VCAT the power to order an occupier to allow entry to the lot or building to a person authorised by an OC. This gives OCs the incentive to choose VCAT for legal claims.

What restrictions will be imposed on management contracts?

The amendments will impose greater restrictions on management contracts. The aim is to prevent long term management contracts and potentially prejudices to owners.

Under the new amendments, any contract of appointment of the third party manager will automatically expire after the first meeting, if an applicant for registration of a plan of subdivision appoints a third party manager (being a person appointed as the manager who is neither an initial owner nor a lot owner) prior to the first meeting of the OC.

Suppose the applicant enters into any other contract (other than a contract of appointment) relating to the OC. If the contract benefits the applicant, any term of that contract must last for longer than 3 years. This doesn’t apply to hotel and resort management contracts that complies with the prescribed requirements.

The final word

The amendments to the Owners Corporations Act are significant and OCs will need to be aware of all the changes, including which tier applies to them, to avoid penalties. We recommend seeking legal assistance to ensure compliance. Contact us to learn more about how we can help you understand and comply with the amendments to the Owners Corporations Act.

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.