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Owners Corporation Law - May 2019

30 Apr 2019

Bill fails to protect residents

New “draft” owners’ corporation (OC) legislation still protects builders and developers, shuts out owners

On its website, Consumer Affairs Victoria has released a copy of the proposed amendments to be made to the Owners Corporation Act 2006.

The “draft” legislation is available for comment from stakeholders until May 10. The state government proposes to introduce the new legislation later this year.

Of particular note is the proposed reform to allow an owners’ corporation to file legal proceedings if an ordinary resolution (50.1 per cent of lot entitlements) is passed at a special general meeting or at the AGM.

Under the current legislation, a special resolution (75 per cent of lot entitlements) is required. It has proven to be virtually impossible under the current legislation for a medium- to large-sized OC (above 50 lots) to be able to pass such a special resolution in the current legislative environment, owing to a combination of developer / builder proxies and absent and overseas Asian investor owners.

Even an interim special resolution (where over 50 per cent, but less than 75 per cent of lot entitlements vote in favour of the motion) has proven impossible to procure due to overseas investors and language barriers.

I have acted for many large residential towers in the metropolitan Melbourne area that are riddled with multi-million dollar building defect issues, but were unable to file a claim against the builder or developer because they were unable to garner the special resolution support.

Many stakeholders spoke out during the Consumer Affairs consultation process to bring forward their case studies about this breach of natural justice. And seemingly, Consumer Affairs listened to the feedback.

I was heartened initially when I read the press release to see that the new “draft” legislation sought to reform this important area of the law.

However, when you dig a little deeper into the detail, the truth of the matter is exposed. In fact, the reform to lower the barrier from a special resolution to an ordinary resolution is only activated if the subject matter in dispute is “within the civil jurisdictional limit of the Magistrates Court.” This limit is currently described as any matter worth less than the sum of $100,000.

So, if an OC sought to terminate an OC manager’s contract, or a caretaker’s contract, and if those agreements had remaining value (including insurance commissions) in excess of $100,00, then it is back to square one of requiring a special resolution.

Indeed, if an OC had a report detailing building defect issues on the common property, then most likely a special resolution is still required.

This keeping of the status quo only suits the tier one developers and builders, and the strata management and facilities management sectors.

It appears that, once again, Consumer Affairs has tipped its hat to the top end of town, leaving OCs disadvantaged and with a serious barrier to justice to try to overcome.

This is especially true in light of the combustible cladding crisis that is currently gripping Victoria, and where hundreds of towers around Melbourne are finding they have had the incorrect cladding installed on their facades. This proposed keeping of the status quo serves only to further protect the building surveyors, engineers, architects and indeed the government bodies that might otherwise be answerable to such claims.

It is worth noting this is not the case in other states and territories. For example, in NSW, only an ordinary resolution is required to commence such legal proceedings, and only then, the voting percentage is made up of those who actually attend the meeting (i.e., if the motion is passed by over 50 per cent of those lot owners that actually turn up to the meeting or send a proxy, then the motion is carried).

Consumer Affairs had an opportunity to bring Victoria into conformity with NSW on this hot topic. Instead, it botched it.

Perhaps the interests of builders and developers in getting away with constructing defective buildings mattered more to the government than allowing its citizens to have their day in court.

Tsk tsk. It appears the government is still clueless about the strata sector, it seems only to care about how quickly and how high the towers can be built. Beyond that, they haven’t really thought about it at all.

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