Is a Body Corporate Compulsory in Victoria?

An owners corporation (formerly body corporate) is the legal entity that owns and is responsible for managing the common property on strata titled plans of subdivision.

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

Whether or not ‘a body corporate is compulsory’ is a common question but what the person is really saying is “is the property part of an owners corporation that we contributed fees and levies to?”. 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 or not ‘a body corporate is compulsory’ or questions such as ‘do you need a body corporate for 3 units?’ depends on which Tier your owners corporations falls into.

What happens when there is no body corporate? 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.

Tier 1 Owners corporation that consists of more than 100 occupiable lots/not a services only owners corporation.

  • Owners corporation must elect a Committee at the annual general meeting.
  • Owners corporation must appoint a manager unless opted out by special resolution.
  • Financial statements must be audited by a registered or authorised auditor, or an accredited accountant.
  • Maintenance plans must be prepared and approved.
Tier 2 Owners corporation that consists of 51 to 100 occupiable lots/not a services only owners corporation.

  • Owners corporation must elect a Committee at the annual general meeting.
  • Owners corporation may choose to have a manager but it is not mandatory.
  • Financial statements must be reviewed by either:
✓ an independent person who is a member of CPA Australia
✓ the Institute of Public Accountants
✓ Chartered Accountants Australia and New Zealand
  • Maintenance plans must be prepared and approved.
Tier 3 Owners corporation that consists of 10 to 50 occupiable lots/not a services only owners corporation.

  • Owners corporation must elect a Committee at the annual general meeting.
  • Owners corporation may choose to have a manager but it is not mandatory.
  • Owners corporation may choose to have their financial statements audited by either of the methods used from Tier 1 or Tier 2.
  • Maintenance plans are not mandatory but may choose to have them prepared and approved.
Tier 4 Owners corporation that consists of 3 to 9 occupiable lots/not a services only owners corporation.

  • Owners corporation may choose to elect a Committee.
  • Owners corporation may choose to have a manager but it is not mandatory.
  • Owners corporation may choose to have their Financial statements audited by either of the methods used from Tier 1 or Tier 2.
  • Maintenance plans are not mandatory but may choose to have it prepared and approved.
Tier 5 An owners corporation for a 2-lot subdivision or a services-only owners corporation.

  • Owners corporation may choose to elect a Committee.
  • Owners corporation may choose to have a manager but it is not mandatory.
  • Owners corporation may choose to have their financial statements audited by either of the methods used from Tier 1 or Tier 2.
  • Maintenance plans are not mandatory but may choose to have it prepared and approved.

The Benefits of a Body Corporate

In our view – provided that you have a professional and competent owners corporation manager – 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 (or by-laws as they’re known in NSW), the owners corporation manager can also be immensely helpful. The owners corporation manager can guide Committees and OC’s on how to create/register new rules, assist with coordinating the drafting of OC rules, and help with enforcing rules.

The Compulsory vs. Voluntary Aspects

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.

  1. Self-managed – 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:
    • Is the strata 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?
  2. Everyone operates with their own silo – 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.

Case Studies and Real-Life Examples

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 to Set Up a Body Corporate

Setting up a body corporate / 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.

 

Conclusion

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.

Strata Consultants Melbourne 1300-917-848 or office@strataconsultants.com.au

Frequently Asked Question

My OC Manager won’t return my calls what can I do?

We do speak with a lot people who take the view that the OC manager is a hassle to deal with and there seems to some negative when it comes to owners corporation managers in Victoria. Potentially these are borne of negative past experiences that some people have had in dealings with their not-so-good owners corporation manager. Negative experiences such as:

  • no response to phone calls and emails
  • rude
  • uncontactable
  • incorrect advice
  • delays in replies to document requests
  • slow to action repairs and maintenance
  • questionable accounting and accounting systems
  • non-competitive obtaining of quotes
  • improper financial management i.e. OC funds not held in separate trust accounts

Fundamentally, our view (and it is mostly that of the strata industry) is that in Victoria it is all too easy to become a registered owners corporation manager.

At Strata Consultants, we counter the low barriers to entry factor by setting high standards for each and every owners corporation management company that we work with.

 

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.
Posted
November 30, 2023
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