Is an Owners Corporation Compulsory in Victoria?

An owners corporation is the legal entity responsible for managing common property on registered plans of subdivision, including repair and maintenance responsibilities. If you’re unsure how this differs from other terms, see our guide on the difference between owners corporation, body corporate and strata management.

The legal framework governing owners corporations in Victoria is the Owners Corporations Act 2006 (‘the Act’).

Whether or not an owners corporation is compulsory is a common question, particularly for buyers trying to understand whether a property forms part of a strata scheme with shared responsibilities and levies.

How to tell if your home is part of a strata scheme

You can tell if your property is strata titled by checking whether it includes shared common areas or forms part of a multi-lot subdivision.

Here are the key signs your property forms part of an owners corporation:

• There is shared or common property: This may include driveways, stairwells, gardens, lifts or other shared infrastructure that multiple owners use or maintain
• You share responsibilities or costs with other owners: This often includes contributions toward maintenance, insurance or upkeep of common areas. Understanding who is responsible for repairs and maintenance within an owners corporation is also important.
• The property is part of a subdivision with multiple lots: Even small developments such as duplexes or townhouse blocks may fall under an owners corporation structure

If your property does not involve any shared property or joint responsibilities, for example a freestanding home on its own title, then it is generally not part of an owners corporation.

Owners corporation tiers in Victoria

The Act was updated with legislative amendments effective on 1 December 2021. Under the amendments, Owners Corporations in Victoria were classified into a 5 tier system.

Duplexes and two-lot subdivisions are classified as Tier 5 owners corporations, with exemptions in place for how they’re governed and function. The tier system extends all the way through to OCs over 100 occupiable lots being as classed as Tier 1.

Section 119(1) of the Act states that a Tier 1 owners corporation must appoint an owners corporation manager.

Section 119(1C) of the Act states that Tier 2 to 5 owners corporation may appoint an owners corporation manager. So whether an owners corporation is compulsory or questions such as ‘do you need an owners corporation for 3 units?’ depends on which Tier your owners corporations falls into.

What happens when there is no appointed OC manager? Essentially when we’re asked this question what we’re being is that there is no appointed owners corporation manager. The owners corporation / body corporate is therefore either:

1. Self-managed; or
2. Operating as if no owners corporation exists.

More on these 2 paradigms in the below.

For additional clarity, the video below features Ada, one of our consultants, further explaining when an owners corporation is compulsory and how the legislation applies in practice.

What are the benefits of professional owners corporation support?

In our view – provided that you have a professional and competent owners corporation manager from a qualified owners corporation management company – the benefits vastly outweigh the costs of the OC management company.

• responsive to phone calls and emails
• polite interaction
• improve accessibility
• accurate guidance
• efficient document processing
• prompt repairs and maintenance
• transparent accounting
• competitive obtaining of quotes
• proper financial management i.e. OC funds not held in separate trust accounts

When it comes to owners corporation rules (known as by-laws in NSW), the manager can also assist Committees with drafting, registering and enforcing rules in accordance with the Owners Corporations Act 2006 (Vic).

Experiencing these standards consistently often comes down to whether the right management is in place.

If your current management arrangements are not delivering this level of service, your Committee may wish to consider a change.  You can speak with one of our Consultants here about transitioning to a new OC manager.

When should an owners corporation appoint a manager in Victoria?

In Victoria, it is only compulsory for Tier 1 owners corporation to appoint an owners corporation manager – which means it is not compulsory for Tier 2 to 5 owners corporations to appoint an owners corporation manager.

Owners corporations operating without an appointed manager

Whereby an owner or resident volunteers his time to co-ordinate the affairs and operations of the owners corporations. Our questions that arise with regards to the voluntary elements are:

1. • Is the building insurance appropriate and adequate?
   • Is the owners corporation adhering to all applicable legislative requirements? i.e. essential fire and safety, public liability, etc.
   • Is someone operating a bank account in name of the owners corporation? Is there any indemnity and fidelity insurance?
   • What happens if the insurance premium and renewal is due in a week and not everyone pays on time? Will the policy be activated if only partially paid?
   • Who prepares the owners corporation certificate and ensure all discloses and balances are correct when an owner wants to sell?

Operating as if no owners corporation exists

Whereby each owner ignores the fact that there is an overarching owners corporation entity and operate as if there isn’t. Each owner takes out their owner building insurance and the common property is effectively ignored as it’s often deemed negligible or insignificant. Of course there are faults and risks with operating under this paradigm. We’ve even cases whereby a property sale failed to go through because the prospective purchaser’s conveyancer asked why there was no public liability insurance for the common property.

What can go wrong without proper owners corporation management?

A good and professional owners corporation manager saves you time, money, and stress in the long run. A few years ago we had an industrial / commercial owners corporation contact us about how their owners corporation was being managed.

The building had a telecommunications tower and accompanying lease agreement whereby the telco paid rent every year to the owners corporation. The owners corporation manager for many years had failed to lodge an income tax return on behalf of the owners corporation (and has been accounting for the funds incorrectly).

This left a financial tangled mess for all the owners in the owners corporation to tackle i.e. who pays which tax amount when lots changed hands years ago, how to reach an outcome to the ATO’s satisfaction.

How is an owners corporation created in Victoria?

Setting up an owners corporation in Victoria occurs when the land surveyor registers the plan of subdivision with Land Victoria. The developer of the land then receives Strata Titles for all the lots on the plan of subdivision. Throughout this set-up process it is often valuable to seek legal and administrative guidance as it’s a lot more time and cost efficient than trying to alter things later on.

Ready to Improve How Your Building Is Run?

Fundamentally if you are buying a property in Victoria – you are either buying a Torrens Titled property (i.e. a free-standing house on a block of land), or a Strata Titled property (i.e an apartment, factory, office suite, etc.). If you are buying any Strata Titled then whether you like it or not then you are automatically buying in as a member of the Owners Corporation as well.

If your owners corporation lacks proper governance and oversight, or if the appointed professional owners corporation manager isn’t providing you with service and guidance – then speak to us. Since January 2014, we have been helping owners corporations Committees to review and get right the management of their building.

You can speak to us on 03 9007 2618 or send us a message here to start discussing how we can help.