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Proxy farming tackled in new Bill

30 Apr 2019

The state government has moved to close loopholes which render owners’ corporations (OCs) vulnerable to takeover by limiting “proxy farming”.

Currently, there is no limit to the number of proxy votes that can be “farmed” and, as reported in our March edition, unscrupulous short-stay operators are currently poised to take over OCs in investor-majority towers.

But an “exposure draft” of a proposed Owners Corporations and Other Acts Amendment Bill tackles the issue and, if made law, would bring Victoria legislation into line with other states.

The government is seeking feedback on the Bill by May 10 and intends to introduce the new legislation later this year.

The new Bill is unlikely to enacted early enough to stop “takeovers” during this year’s annual general meeting (AGM) season. But once it does become law, proxies will lapse after 12 months.

And, tellingly, proxies farmed by non-lot owners won’t be able to be used to vote out strata managers.

Under the proposed Bill: A person who is not a lot owner but who is the proxy of a lot owner may not vote on any matter that affects that person relating to —

(a) the delegation of powers and functions of an owners’ corporation under section 11; or

(b) the appointment, payment or removal of the manager of an owners’ corporation under Part 6.

And, in the future, it is unlikely that proxy holders will be able to command a majority of voting power because the government proposes to limit the number of proxies held by individuals.

The Bill proposes: A person must not vote as a proxy on a resolution at a meeting of the owners corporation —

(a)  on behalf of more than one lot owner — if there are 20 or less occupiable lots on the plan of subdivision; or

(b)  on behalf of more than 5 per cent of the lot owners — if there are more than 20 occupiable lots on the plan of subdivision.

The Bill also tackles threatening behaviour being used by unscrupulous individuals to “farm” proxy votes. It introduces a 60-penalty-unit offence for “requiring or demanding” proxy votes from lot owners.

The Bill has been cautiously welcomed by the We Live Here movement, which represents OC committees.

In its column on page 22 of this edition, We Live Here says: “… at first glance the proposed new Bill does seem to give more support for owners’ corporations than previously, indicating that our voice is at last being heard.”

In the column, the movement highlights aspects of the Bill which recognise that different sized OCs require different treatment.

It also draws attention to moves designed to stop builders and developers from setting up unfair, long-term contracts with related companies when an OC is first formed.

The column says: “We Live Here has previously expressed concern that the government has been consulting in private and only with commercial groups – businesses that make money from buildings that are governed by owners corporations, and not the owners’ corporations themselves.”

“However, it seems submissions and campaigning by us and others have not been in vain, and we welcome the proposals that are aimed at creating a clear distinction between the role of owners’ corporations and the role of owners’ corporation managers in buildings that are governed by owners’ corporations.”

But not everyone is happy with the Bill.

In his Owners’ Corporation Law column in this edition (see page 23), strata lawyer Tom Bacon says the government has failed to give OCs real power to seek legal remedy for the things that really matter – such as building defects like non-compliant cladding.

Mr Bacon writes: “… 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.”

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