Key Takeaways:
- Developers set up the Owners Corporation and contracts, giving owners little say and often locking them into unfavourable arrangements.
- OC managers may prioritise developers over owners, leaving defects unresolved and costs pushed onto owners.
- Owners have only 10 years to act on defects, making delays and unhelpful managers especially costly.
How do developers set up owners corporation contracts before owners have any input?
Firstly, we need to discuss what happens with new buildings, Owners Corporations (OCs), and how timing ultimately impacts Owners and Committee Members (not always for the better).
- The developer buys the land and obtains approval to build.
- The design and build process gets underway.
- Once the building is completed, the developer registers the Plan of Subdivision with Land Victoria.
- Once the Plan is registered, the site is now a building with individual titles that can be bought and sold – and at the same, an Owners Corporation is created in the process.
- The developer as the initial owner sets-up and implements all the initial contracts including the owners corporation management contract.
- The owners move in and the OC is tied to these contracts (until the day the contracts expire and the Committee does something about it).
Can a developer-appointed OC manager be truly independent when building defects arise?
So, the owners, investors, and Committee Members constitute the OC, and they are the ones who pay the OC levies. A portion of the OC levies (the management fees) goes into the pocket of the OC management company.
But what happens when the building has defects and other issues? Whose side is the OC management company actually on? This problem is a well-known industry inside secret – don’t upset the developer or bite the hand that feeds you.
The reality is that the OC management company may be conflicted between helping the OC action building defects vs staying in favour of the developer (with the hope to be appointed on their next project). Unfortunately, it is often the latter that wins out.
It then becomes much easier to raise work orders and special levies paid for by the OC rather than have an uncomfortable conversation.
How long do owners corporations have to make a building defects claim in Victoria?
How long do Committees and owners corporations have when it comes to lodging a claim for building defects?
Section 134 of the Building Act 1993 (Victoria) states:
” Limitation on time when building action may be brought
(1) Despite any thing to the contrary in the Limitation of Actions Act 1958 or in any other Act or law, a building action cannot be brought more than 10 years after the date of issue of the occupancy permit in respect of the building work (whether or not the occupancy permit is subsequently cancelled or varied) or, if an occupancy permit is not issued, the date of issue under Part 4 of the certificate of final inspection of the building work. “
No one buys a brand new apartment expecting to deal with building defects for years to come. Dealing with building defects comes with immense emotional and financial costs, but the OC management company (depending on their loyalties) will either help or make matters worse.
What are the most common building defects affecting owners corporations?
Building defects have been plaguing owners corporations and owners across Australia for the past 1-2 decades. It’s an unfortunate reality that probably hasn’t received due media attention until in recent years when some larger apartment towers in Sydney had to be evacuated.
- Common issues affecting OCs include:
- Flammable cladding
- Water ingress and inadequate waterproofing
- Structural integrity issues
- Inadequate fire safety compliance
- Glass and other major components are defective
These issues and others are always stressful and costly for the owners. Owners in strata-titled buildings and owners corporations rely on the guidance of their OC management company. If objectives and values aren’t aligned, the entire process becomes much more stressful and costly for the owners and Committees.
What does Victorian legislation say about developer obligations to owners corporations?
The Owners Corporations Act 2006, I’m sure, meant well with its directive that the developer ‘must act in honestly and in good faith…’ but it was definitely very broad terminology. Fast-forward 15 years, and finally, we have the OC amendments coming into force, which are a lot more clear and prescriptive:
Was there a lot of rampant misbehaviour for the legislators to step-in and pick up the pen? We have had some insights from the Committees we have worked with and sat down with. Comments and insights such as:
- The developer’s representative (the daughter) showed up to the AGM with their proxies and openly relayed that her dad had told her she was to vote and say no to everything. In the running of the building, if matters didn’t meet the developer’s expectations, then decisions and votes were swayed to be in the developer’s favour ultimately.
- Defects dragging on and on—it later becomes apparent that this seems to have been the OC management company’s main game.
- OC management companies are either 100% owned subsidiaries of the developer or a related party or are aligned/affiliated. There are (were, and/or should be no more under new OC amendments) some larger developers and OC management companies having formal arrangements and agreements in place.
We wrote this more comprehensive overview of OC legislation in Victoria a while back (well worth a read): https://strataconsultants.com.au/articles/the-long-road-to-fairness-for-apartment-owners
How can Strata Management Consultants help you replace a developer-appointed OC manager?
Since January 2014, committees have trusted us to navigate the process of changing OC management companies. We are 100% independent, not tied to any other company, and work with a panel of carefully vetted OC management companies.
