WHAT ARE OWNERS’ CORPORATIONS?

by Michael Xu

An owners’ corporation (previously called a body corporate) is a legal entity that manages the common property of a residential, commercial, retail, industrial or mixed-use property development. It is automatically created when a plan of subdivision containing common property is registered with Land Use Victoria.

General terms and principles

Plan of subdivision

The plan of subdivision depicts the break-up of a piece of land, showing parcels of land called ‘lots’ that can be sold separately. It defines and governs the ownership of each piece of land, and the buildings and airspace on the land, and any common property.

Each plan of subdivision must be registered with Land Use Victoria, which will allocate a number to the plan upon registration.

Plans of subdivisions that require the creation of an owners’ corporation will also outline each lot owner’s voting entitlements and financial contributions.

Lots

A lot is a part of land, buildings and airspace on a plan of subdivision that can be separately owned and sold. Technically, lots are those parts of land, buildings or airspace that are not common property, road or a reserve, and include accessory lots such as car spaces, storage bays and storerooms.

Common property

This includes any parts of the land, buildings and airspace that are not lots on the plan of subdivision. It may include gardens, passages, walls, pathways, driveways, stairs, lifts, foyers, fences, swimming pools, recreational areas etc. The common property is collectively owned by the lot owners as ‘tenants-in-common’. Floor coverings and fixtures within a lot are usually the property of the lot owner.

Common seal

An owners’ corporation must have a common seal, available from a stationery shop, which must contain the owners’ corporation’s name and plan of subdivision number. This represents the signature of the owners’ corporation.

It must be used on all documents created by a resolution passed by the owners’ corporation; for example, contracts for services, making additional rules or the appointment of a manager. The use of the common seal must be witnessed by two lot owners or when affixed to an owners’ corporation’s certificate a manager or chairperson. Misuse of the common seal can have serious financial and legal consequences.

Classes of Owners’ Corporation

Depending on their size, owners’ corporations have different levels of responsibilities and duties.

Two-lot subdivisions are exempt from many of the legal requirements placed on larger owners’ corporations, such as:

  • requirements for notices of fees
  • procedures for meetings and decision-making
  • keeping records and an owners’ corporation register
  • having insurance for the owners’ corporation.

Prescribed owners’ corporations, which have more than 100 lots or collect more than $200,000 in annual fees in a financial year, have additional obligations such as:

  • establishing a maintenance plan
  • having financial statements audited every year
  • every five years, obtaining a valuation of all buildings it is required to insure.

Multiple Owners’ Corporations

Many large scale residential or commercial property developments often contain more than one owners’ corporation. In such cases, the multiple owners’ corporations will usually consist of:

  1. An unlimited owners’ corporation, which owns the common property; and
  2. One or more limited owners’ corporations, which applies to only a certain group of lots.

Where a property has multiple owners’ corporations, it is important for lot owners to be aware that these owners’ corporations affect their lot.

Relevant laws and regulations

Owners corporations in Victoria are governed by the following Acts and Regulations:

  1. Subdivision Act 1988 (Vic) – The Act governing how owners’ corporations are created; and
  2. Owners Corporation Act 2006 (Vic) – The Act governing the powers and functions of owners’ corporations. This came into force on December 2007 and made all previous body corporate entities into owners’ corporations; and
  3. Owners Corporations Regulations 2018 (Sr No 154 Of 2018) – The latest version of the regulations, containing the “Model Rules for an Owners’ Corporations”.

For further information or enquiry on the above, please contact us or Michael Xu.