Some of the current issues facing lot owners are:

• Unsatisfactory management by owners corporation managers;
• Defects in common property which impact the value and liveability of a lot owners property;
• Low participation by lot owners in the conduct of the owners corporation;
• Owners corporation’s functioning without a committee due to no active participation from lot owners;
• Lack of transparency in how owners corporation financial and decision-making processes occur;
• Self-managed owners corporations not functioning in compliance with the Owners Corporation act 2006 (Vic).
• Disputes being triggered between lot owners due to poor management. 

Owners corporations often do not have the funds to seek legal advice when issues arise.  Sometimes they don’t know when to reach out for legal assistance because they rely on their professional manager to resolve a matter.  However, professional managers are not legally trained.   This can lead to disputes and owners corporation funds being wasted in resolving matters. 

Are you getting value from your owners corporation manager?

• Issues that might get you thinking about changing managers
• Manager does not return calls or reply to emails within a reasonable period of time (ie you 3 working days);
• Management fees continue to rise each year and service from your manager has not been consistent;
• Manager has been managing the owners corporation for more than 10 years and is not providing any advice about possible refurbishment or upgrade of common areas;
• Manager has provided incorrect advice which has triggered disputes between lot owners;
• Manager is reluctant for an audit of the owners corporation’s bank account to occur so that it can be reconciled;
• Manager is not experienced and is not providing valuable advise
• Manager has not promoted the participation of lot owners so that a functioning committee can be formed;
• Manager has not attended the building in recent years and is not aware of it and the common property’s current condition.
   
  

What are the key issues when buying into an owners corporation?

• Are the maintenance fees too low?
  
• Is there a reserve or sinking fund? If so, what is the balance?
• Are there any unresolved disputes or legal issues?
• When was the last AGM held? Was it more than 15 months ago?
• Is there a committee appointed?
• Was there a quorum at the last AGM?
• Are there any proposals for special levies? If so, under the standard Victorian contract of sale, any special levy struck after the day of sale is payable by the purchaser and not the vendor (unless negotiated otherwise).
• As a professional manager being appointed, or does the owners corporation self – manage? What is the period of appointment of the manager?
• What is the condition of the common areas?
• Are there any leases or licenses granted for which the owners corporation is not receiving a commercial return?
• Are there any services or mechanical equipment on the common property which must be maintained and replaced in future years (i.e. car stacker, lifts, pool, gym, rooftop garden, etc.)
• How many owner occupiers leave in the subdivision?
• Is the subdivision a strata harm or company share arrangement (i.e. there is no plan of subdivision note and owners corporation or accessory lots are not owned by lot owners as there is no certificate of title for these, such as car parks and courtyards).
  
• What is the age, socio-economic demographic of the lot owners?
• Are there any arrears or unpaid fees by any lot owners? 

What's involved in maintaining an owners corporation register?

An owners corporation is required to maintain a register of all lot owners with their contact details.  However, many managers are reluctant to provide that register to a new manager when the existing manager’s appointment ceases. 

Sometimes managers fail to keep the register updated.  If they did, then they would know who are lot owners and who are not and require a proxy form to attend, vote and speak at any meeting.

How can a financial audit benefit us?

If an owners corporation has never had a financial audit of its records, then it is worth doing so at least every 5 to 10 years, particularly when there are funds in reserve for which interest should be accruing.

If an audit is conducted then it provides certainty to all lot owners that the financial records of the owners corporation can be reconciled and that there are no discrepancies, particularly when an owners corporation wishes to engage a new manager.   If the accounts can’t be reconciled, then it is better to identify this sooner rather than later so that the discrepancy can be dealt with and written off or resolved in some other way.

What are the benefits of converting a stratum scheme or company share arrangement to a plan of subdivision with an owners corporation

A stratum title scheme in Victoria is where a strata plan where there are only lot numbers on the strata plan for dwellings, and may or may not include separately numbered lots for carparks or garages.   All carparks, courtyards and access areas and common areas are owned by a service company as shown on the plan.  Lots owners have use rights only to these areas, and do not own any accessory lots, but may have a lease or licence.  There is no plan of subdivision and no owners corporation.  

A company share scheme for a parcel of land in which there are multiple owners and lots is characterised differently.  Company share was Victoria’s first method of attempting to subdivide a parcel of land to deal with multiple lot owners. In a company share arrangement, a service company owns all of the land and grants use rights by way of a lease or licence, and allows a lot owner, as a director and shareholder of the service company to lodge a caveat against the title to the whole of the land.  Banks are usually reluctant to lend monies to purchasers of company share apartments because the bank cannot lodge a mortgage and does not have a power of sale that it can easily exercise if the borrower fails to pay or repay the mortgage. Vendors sometimes find that the only purchasers they can sell to are those not requiring finance from a bank.  There is no plan of subdivision and no owners corporation.

Roof replacement – be aware of demarcation disputes

When an owners corporation commission high cost capital improvement works, be aware of the risk of demarcation disputes when different trades are involved in carrying out the work.  A manager for a subdivision in Elwood obtained quotes for a cement tile roof to be replaced with terracotta tiles, sarking, roof vents, fall back arrestors and replacement of timber trusses in the roof costing approximately $80,000. 

A quote was obtained from a plumber to fit a Monier tile to the roof.  The plumber’s work would be covered by a warranty and the roof product would be covered under a separate warranty.  However, there was the risk that if there was a leak to the roof, that it would be unclear what the cause was and which warranty would cover the leak.  To prevent a potential demarcation dispute, the owners corporation resolved to engage a roof replacement company that provided one warranty for its installation and the roof product. 

The importance of a dilapidation survey (condition report) for carrying out capital improvements to common property

In one particular case in Elwood, an older Art Deco building required underpinning. The building was located on sandy soil and required underpinning. The manager obtained quotes for the underpinning works struck a special levy to fund those works.   Each lot owner was required to pay a special levy of approximately $16,000 for the works. The manager failed to commission a dilapidation survey of the building and interior of each apartment prior to the underpinning works proceeding. 

One lot owner on the ground level claimed that the underpinning works had caused excessive cracking and detachment of her fireplace to the wall of her apartment and claimed the cost from the owners corporation to reinstate her apartment to the condition its was in prior to the underpinning works commencing.    That cost equated to approximately $2,000 per lot owner.  As a dilapidation survey had not be obtained prior to the commencement of the works, it could not be proven that the underpinning works did not cause the damage to the apartment.  This placed an additional cost burden on the lot owners. 

The importance of maintaining a proxy register

It is a requirement under section 87 of the Owners Corporation Act 2006 (Vic) that any lot owner who grants delegates their right to attend, speak and vote at an any meetings to a third person on their behalf, does so by signing a proxy form every 12 months.  A proxy form granted to a third person must be renewed every 12 months and provided to the manager and held in the owners corporation’s records. It is important that owners corporations check annually that any person appointed as a proxy are not acting on behalf of lot owners without holding a current proxy form.

In one particular case in a subdivision in Toorak, an owners corporation manager was not annually checking proxy forms submitted.  The manager was not requesting that a new proxy form be provided each year from lot owners who had delegated their voting function to a third person.
It was subsequently discovered the owners corporation committee than an occupant of an apartment in the subdivision, was not a lot owner but a tenant. 

That person had, whenever asked, stated that he was a lot owner.  He was an active member of the owners corporation committee and commissioned various landscaping and improvement works for the owners corporation. 
The manager was asked to conduct a title search of the supposed lot owner’s title where it was found that that person was not the lot owner.  He as subsequently requested to provide a proxy form from the lot owner.  It transpired that the proxy form could not be produced. 

That person was asked to stand down from the owners corporation committee and no longer attend any owners corporation meetings, which was an awkward situation for both the person involved and the lot owners. 

The issue of an unauthorised person commissioning work for the owners corporation and incurring expenditure posed a potential legal liability issue for the owners corporation.  This was because committee decisions were being made by someone without proper authority to do so.  This could have been avoided had the manager conducted an annual check of all proxy forms previously provided by lot owners. 

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