Why Owners Corporation Insurance Can Stop a Property Sale September 21, 2026

For many owners of small subdivisions, an Owners Corporation (OC) is often overlooked. In practice, some OCs become inactive, hold no meetings, collect no fees, and, most importantly, maintain no insurance. While this may seem harmless, it can have serious consequences when an owner decides to sell.

The Common Misconception

A common assumption is that where a subdivision only involves a small number of lots, the Owners Corporation can simply be ignored. While there are circumstances where an inactive OC may not create significant day to day issues, the legal position changes dramatically when the subdivision contains common property and the Owners Corporation is required to maintain insurance.

Different rules apply to Owners Corporations comprising only two lots, which are generally exempt from the statutory insurance requirements discussed in this article.

Vendors are often surprised to learn that the absence of Owners Corporation insurance is not merely a disclosure issue. It can directly affect their ability to sell the property and may create rights for a purchaser to avoid the contract.

When Is Owners Corporation Insurance Required?

For an Owners Corporation comprising three or more lots, common property will generally need to be insured. This includes reinstatement and replacement insurance for buildings on the common property and public liability insurance for the common property. Additional insurance requirements can apply to multi level developments.

The precise insurance requirements depend on the subdivision and should be checked against the plan of subdivision and the requirements of the Owners Corporations Act 2006 (Vic).

Why This Matters During a Sale

When a property affected by an Owners Corporation is offered for sale, the vendor must comply with various disclosure obligations under Victorian legislation.

If the Owners Corporation is required to hold insurance but has failed to do so, the Owners Corporation may be in breach of its statutory obligations. This creates a significant risk for the sale transaction.

Section 11 of the Sale of Land Act 1962 (Vic) prohibits the sale of a lot affected by an Owners Corporation unless the vendor or Owners Corporation has a current policy of insurance for any insurance required under the Owners Corporations Act 2006 (Vic). If a lot is sold in contravention of that requirement, the purchaser may avoid the sale at any time before the contract is completed.

This can place the entire transaction at risk, potentially resulting in delays, additional costs or the collapse of the sale.

Inactive Owners Corporations Can Still Create Problems

It is not uncommon for owners in small subdivisions to advise that the Owners Corporation has never operated formally.

Statements such as “the owners just sort everything out between themselves” or “there has never been any insurance” may appear practical from a day to day perspective, however these arrangements do not override legislative requirements.

The Sale of Land Act 1962 (Vic) recognises an “inactive” Owners Corporation for disclosure purposes and, where the relevant requirements are met, permits this to be disclosed in the vendor’s statement. However, describing an Owners Corporation as inactive does not remove an obligation to maintain insurance where insurance is required by law.

Where insurance is required, the fact that an Owners Corporation has been inactive for many years does not remove the obligation to obtain and maintain appropriate cover.

What Should Vendors Do?

Owners who are considering selling should review the status of their Owners Corporation well before the property is listed for sale.

Questions to consider include:

• Is there an Owners Corporation affecting the property?
• Does the subdivision contain common property?
• Is Owners Corporation insurance currently in place?
• Can current insurance certificates be produced?
• Is an Owners Corporation Certificate available?

If insurance is required but is not in place, the issue should be addressed before the property is sold. Attempting to rectify the position after a contract has been signed may leave the purchaser with a statutory right to avoid the sale before completion.

The Takeaway

An inactive Owners Corporation may seem like an administrative inconvenience, but when a situation arises where insurance would be needed, the consequences can be significant. Vendors in subdivisions with multiple lots should ensure that their Owners Corporation is compliant before bringing a property to market.

The cost of obtaining appropriate insurance is generally far less than the cost and disruption that can arise from a failed settlement or a purchaser exercising rights to avoid a contract.

As always, vendors should obtain legal advice early in the sale process to identify and resolve any Owners Corporation issues before they become a problem.