Owners Corporation Facts
As professional owners corporation managers we have acquired a detailed understanding of property ownership and management issues relating to this often complex and time consuming field.
To assist you in understanding what is often considered to be assumed knowledge, we have prepared the following notes.
We hope these notes will be of some assistance.
Most people are familiar with the process of purchasing a parcel of land and receiving a Certificate of Title describing it in terms of width and depth. However, when purchasing an apartment or a dwelling where common area and facilities are available, more complex issues arise as a single parcel of land is transformed into multiple lots and separate ownership.
In the past, legislators in various ways have addressed this complexity by:
- Company Share
- Stratum Titles
- Strata Titles
- Subdivisions Act
COMPANY SHARE
As the demand for “Own Your Own” flats developed, Company Share schemes evolved to enable separate ownership of apartments. Shares in a special purpose Company were issued to purchasers providing them with a right to occupy their respective apartments. It also set out their rights and responsibilities concerning common areas. Problems arose with this scheme, as there was no standard method and the cost of buying and selling Company Share apartments increased. Furthermore, lenders could not obtain a Mortgage over a Property Title as Security for a loan. Many financiers became unwilling to provide finance for the purchase of Company Title Property.
STRATUM TITLE
This Legislation, introduced in 1960 provided a framework for the separate ownership of flats. It enabled Titles to be issued for areas within buildings and created Title for common areas owned by a service company. Each owner was party to an Agreement with the serviced company that would regulate the rights and responsibilities of owners regarding Common Property. Difficulties arose when checking the precise location and dimensions of owners Titles as all Lot Boundaries were defined by dimension.
STRATA TITLE
The Strata Titles Act was introduced in 1967. It revolutionised the apartment market by dramatically simplifying Property Title for the multiple ownership of apartments. This scheme created separate Titles including an undivided share of common property. It also provided for a Body Corporate, avoiding the need to create a separate service Company. Each Lot owner automatically became a Member of the Body Corporate with the primary responsibility of managing the common property. The Strata Title scheme made mortgage financing easier and reduced the complexity and cost of conveyancing.
SUBDIVISION ACT
The Strata Titles Scheme offered many advantages, but it was often quite inflexible.
Each Unit and common property needed to be created and a Body Corporate always came into existence automatically. The Subdivisions Act introduced in 1988, permitted the Subdivision of land, buildings or air space with or without common property and with or without a body corporate. It streamlined the prior Legislation and offered a more manageable, cost effective scheme. This was the Legislation applicable to all multiple ownership properties up to 2006 when the Owners Corporation Act 2006 became effective.. The following notes address the most relevant, practical issues in relation to the Subdivisions Act.
WHAT ARE YOU BUYING?
In each Subdivision, the owner purchasers a separate portion of land, or air space within the building. The boundaries are defined two or three-dimensional in buildings, it usually extends to the mid-line of all external walls, floors, and ceilings. This space purchased by the owner is known as “the lot.” Common property comprises all land, building or air space not included in
the lots sold to owners. Owners automatically become members of a legal entity to control this common property. This entity is known as the Owners Corporation, formally know as Body Corporate.
Ownership of common property passes automatically with the lots and cannot be dealt with separately. Maintenance and responsibility for common property is the domain of the Owners Corporation. In accordance with the Owners Corporation Act 2006 owners and developers have the responsibility in relation to affecting the insurance for the buildings on the lots and public risk on the common property.
Developers are required, prior to registration of the Plan to take out insurance that would be required by the Owners Corporation and to keep that insurance current until either six months after the Plan is registered or the first Owners Corporation meeting is held (whichever is the later).
LOT ENTITLEMENT AND LIABILITY
Each lot sold has a specified number entitlement and liability units. Lot liability represents the proportion of the Body Corporate expenses borne by a particular lot owner. It is effectively the limit of the lot owner’s liability for the expenses of the Body Corporate.
Lot entitlement reflects the lot owner’s share of ownership in the assets -i.e. the common property. Further, it dictates the entitlement of a lot owner if the owners corporation is dissolved (e.g. if the entire building is sold, destroyed or demolished) and voting rights at Owners Corporation Meetings.
Usually, lot entitlement and liability will be the same, but not in every case. For example, lot entitlement should usually reflect the value of the lots as a proportion of the total value of all lots. By contrast, lot liability should be based upon a fair sharing of expenses of the owners corporation..
OWNERS CORPORATION MANAGEMENT
The Owners Corporation is governed by rules in accordance with the regulations made under the Owners Corporation Act 2006. However, more detailed Owners Corporation additional rules may be adopted. They should set a firm framework by which the common property will be managed and maintained. They also strive to maximise amenity for the benefit of all owners.
Bodycorp Pty. Ltd. management adopt relatively stringent additional Owners Corporation rules. They assist in protecting the integrity and value of each owner’s interest in the property, particularly in the long term. They include such important requirements as: regulating what is visible from the exterior of the complex, prohibiting the hanging of washing or clothes on balconies, the erection of advertising signs and the display of unsightly pot plants. Often these rules are considered petty. Yet it is surprising how often occupants with a long-term interest in their investment are the first to commend their implementation.
The Regulations made under the Owners Corporation Act 2006 permit the appointment of a committee, a manager and a secretary to conduct the day-to-day running of the Body Corporate. The Body Corporate may delegate most of its functions to the committee, to the manager or secretary. The committee for the owners corporation is usually elected at a general meeting. Committee members must be members of the owners corporation or their proxies. The committee size can range from 3 to 12 members.
Larger Bodies Corporate appoint a Professional Manager. Usually, the manager’s responsibilities are limited to the collection of fees, appointing, managing and payment of maintenance and cleaning contractors and effecting insurance. Over time, Bodycorp Pty. Ltd. Management has developed a comprehensive job specification for a successful, trouble free operation. For a newly completed property, Bodycorp Pty. Ltd management undertakes the initial set up of the Owners Corporation structure and the engagement of suitable personnel to undertake the various owners corporation management tasks.
Later, when the new owners are settled in, these arrangements form the basis or the ongoing function of the Owners Corporation. Naturally, once the new Owners Corproation is operational, it has the right and power to amend any of these initial arrangements.
ESSENTIAL SERVICES
The Victorian Government introduced new requirements for building owners to manage and maintain the safety of public buildings. Amendments to the building regulations took effect from July 1, 1999. As from this date all owners of buildings including an Owners Corporation built or altered after July 1, 1994 will be required to sign an annual essential services report and display the report in a prominent location, next to the occupancy permit within the building.
WHAT ARE ESSENTIAL SERVICES?
Essential Services are the fire and life safety items installed or constructed in a building to ensure adequate levels of fire safety over the life of the building. Essential Services include all traditional building fire services such as sprinklers, mechanical services etc., but also include passive fire safety such as fire doors, fire rated structure etc. and other building infrastructure items such as paths of travel to exits. Essential Services only apply to buildings constructed on or after 1 July 1994.
OWNERS RESPONSIBILITY BUILDINGS BUILT ON OR AFTER 1 JULY 1994
The current regulations have made it mandatory for the building surveyor to list the required essential services on the issuing occupancy permit. The level of performance to which the services is to be maintained must also be specified on the occupancy permit. In the case of an essential service being provided where no occupancy permit is required then the level of performance must be specified in writing and given to the owner.
The regulations require that the owner:
- Maintain records of maintenance checks;
- Complete an essential services report in accordance with regulation 11.6 before each anniversary of the date of occupancy permit or determination under regulation 11.4; and
- Keep all essential service reports and records of maintenance checks on the premises for inspection by the municipal building surveyor or chief officer at any time of request.
BUILDINGS BUILT BEFORE 1 JULY 1994
The regulations require the maintenance of safety equipment, safety fittings or safety measures within existing buildings. These items are not defined as essential services as those requirements only apply to buildings built (issued with occupancy permits) on or after 1 July 1994. The owner is however still responsible for ensuring that the safety equipment, safety fittings or safety measures is maintained in a state which enables them to fulfill their purpose.
The safety equipment, safety fittings or safety measures that are to be maintained are the items installed or constructed in the building that were required by the regulations at the time of construction. These will be typically similar to those listed as essential services.
Owners are also responsible for the maintenance of exits and paths of travel to exits. The exit paths must be “Maintained in an efficient condition and kept readily accessible, functional and clear of obstruction so that egress from the building or place is maintained”, that is, to ensure proper housekeeping of the paths of travel to exits and keep exit doors and door hardware functioning.
