New Vic strata laws target cronies and contracts


Strata laws have been given a major shake-up in Victoria – and it’s all about consumer protection.

As well as including new rules for strata owners and committees, the new owners corporation laws that came into effect in Victoria last week represent a major crackdown on both OC managers (strata managers) and developers, with a particular focus on the relationships between them.

As of December 1, OC managers can’t be appointed for more than three years at a time, can’t have contracts that make them hard to be cancelled, allow them to be renewed at the manager’s choosing and a raft of other restrictions.

One controversial element is that the managers must be registered but they must apply for special exemption if they have been convicted of a serious criminal offence.

Meanwhile developers are not allowed to appoint family members, established business associates or employees as OC managers in new schemes.

They also can’t sell apartments with unrealistic budgets – presumably so they can promise unfeasibly low fees – and must establish unit entitlements based on the market values of the apartments they sell.

Developers have been known to set low unit entitlements for larger, prime units, so as to attract potential buyers with the promise of lower fees.

They will also be prevented from taking payment for appointing OC managers or from locking new owners into contracts that run for more than three years (another source of dubious revenue).

In combination, the new restrictions on developers and OC managers represent a long overdue cleaning up of strata in Victoria where exploitation of apartment owners has been rampant for decades.  

The following information has been extracted from Consumer Affairs Victoria’s website.

Changes to improve the quality of owners corporation managers

Appointment and removal of a manager

An owners corporation (OC) manager cannot be appointed for more than three years, or five years for a retirement village OC.

An OC manager’s contract cannot include terms that:

  • require the OC, before it revokes the appointment of the manager, to:
  • pass a special resolution
  • pass a unanimous resolution
  • pass any other resolution requiring more than a simple majority of votes
  • convene a general meeting of the OC, or
  • take any other prescribed step.
  • allow the manager to renew the contract of appointment at his or her discretion.
  • require a tier one or two OC to give three months or more notice of its intention to revoke the appointment.
  • require a tier three, four or five OC to give one month or more notice of its intention to revoke the appointment.
  • provide for the automatic renewal of the contract of appointment if the OC fails to give notice of its intention not to renew in accordance with its terms.
  • restrict the ability of the OC to refuse to appoint a person as manager, other than a requirement that consent to appoint a person as manager must not be unreasonably withheld by the OC.

If any of these terms are included in a contract entered into after 1 December 2021, they will be void.

If an OC fails to give notice of its intention to renew a contract of appointment, it will be taken to have been renewed. In this circumstance, the contract may be terminated by the OC or the manager with at least one months’ written notice (or a shorter period if provided for under the contract).

Duties of a manager

The duties of an OC manager have been expanded. They must:

ensure any goods and services they procure on behalf of the OC are competitively priced and/or procured under competitive terms.

not exert pressure on any member of the OC to try and influence the outcome of a vote or election.

give written notice to the OC chair disclosing any commission, payment or other benefit they are entitled to receive under a contract to supply goods or services to the OC.

Upon request from an OC, OC managers must provide copies of financial statements for bank accounts that contain money they hold on trust on behalf of the OC, as soon as practicable. This applies for any period within three years immediately preceding the request.

A manager may hold money on trust on behalf of separate OCs in the same bank account only if;

  • each OC is on the same plan of subdivision and has consented to the money being held in the same account, or
  • the bank account is a statutory trust account held by:
  • a licensed estate agent under the Estate Agents Act 1980
  • an Australian legal practitioner within the meaning of the Legal Profession Uniform Law (Victoria), or
  • a licensee under the Conveyancers Act 2006.
  • Money held by a manager on trust on behalf of an OC includes any interest earned.
  • A manager must disclose any beneficial relationship they have with a supplier of goods and services they propose to enter into a contract with on behalf of the OC. They must disclose this in writing to the OC chairperson as soon as they become aware of the beneficial relationship.

They will not be in breach of their duties if they:

  • could not have reasonably been expected to be aware of the beneficial relationship before a contract is entered into, and
  • disclose the beneficial relationship to the chairperson of the OC immediately after becoming aware of it.

A manager must disclose in writing to the chairperson of the OC any commission, payment or other benefit they stand to receive from a supply contract.

Manager’s report

The manager’s report at each annual general meeting must contain more information. As well as previous requirements, it must also include the following details for the year:

  • details of receipts and disbursements of money the manager has held on trust for the OC, and
  • any commissions, payments or other benefits they have received in relation to contracts for goods or services supplied to the OC. If exact amounts cannot be reasonably provided, the manager must include an estimate.

Registration of managers

There are new restrictions on registering a manager who has a criminal record.

  • Anyone who has been convicted or found guilty of the following offences within the last 10 years is not eligible for registration.
  • An offence involving fraud, dishonesty, drug cultivation or trafficking.
  • An offence involving sexual slavery or servitude.
  • An offence involving child pornography or violence.
  • A sexual offence or an offence connected with sex work.

An offence committed outside Victoria that would constitute an offence referred to any of the examples above, if it was committed in this state.

The offences must have been punishable by a prison term of three months or more when the person was found guilty or convicted.

A person can apply to the Business Licensing Authority for permission to be registered as an OC manager if they have committed one of the above offences. The Business Licensing Authority may grant permission for an ineligible person to be appointed if it is satisfied that it is not contrary to the public interest. The outcome of permission applications will be contained on the register of OC managers.

If the manager (or if the manager is a corporation, a director of the corporation) is convicted or found guilty of any of the offences above, their registration will be automatically cancelled 30 days later.

Profession indemnity insurance

A registered manager must be covered by professional indemnity insurance, and notify the Business Licensing Authority if they cease to be covered. Their registration will be automatically cancelled 30 days after coverage ceases.

Amendments affecting developers

New general obligations to OCs

Developers now owe more obligations to the OCs they create. They will also owe certain obligations to OCs for longer.

The new obligations will prohibit a developer from:

  • appointing themselves as OC manager (unless the OC in question relates to retirement village land)
  • appointing an associate, such as a spouse or employee, as OC manager
  • voting on any resolution of the OC that relates to a defect in or on a building on the plan of subdivision
  • proposing an annual budget of the OC which is unreasonable or unsustainable;
  • designating as a private lot what would normally be common property or services;
  •  receiving any payment from the OC manager in relation to the OC manager’s contract of appointment.

Additionally, a developer will now owe the below existing obligations to an OC for 10 years (rather than 5 years) following the registration of the plan of subdivision if the developer is the owner of a lot or lots with the majority of lot entitlements:

  • to act honestly and in good faith and with due care and diligence in the interests of the OC in exercising any rights under the OC Act.
  • to take all reasonable steps to enforce any domestic building contract they have entered into to the extent that it relates to the common property and provided the developer is aware or should reasonably be aware of the breach of the domestic building contract.

New obligations when preparing plan of subdivision

When preparing a plan of subdivision, a developer is now required to engage a licensed surveyor to set out the initial allocation of lot liability and lot entitlement in the plan (unless the OC is a tier five OC).

The plan of subdivision must now specify details of lot entitlement and lot liability. It must also be accompanied by a statement detailing how lot entitlement and lot liability has been allocated.

There are new laws in relation to the allocation of lot liability. Lot liability in a plan must now be allocated equally between the lots except where:

  • there is a substantial difference in the size of the lots, in which case lot liability must be determined by the size of the lot and the proportion that size bears to the total size area of the lots; or
  • different lots have a bearing on the consumption or use of common utilities or the cost of maintaining the common property in which case lot liability must be determined by the size of the lot and level of consumption or use by that lot of the common utilities and the common property; or
  • the number of occupiers in each lot has a greater bearing on the consumption or use of the common utilities or the cost of maintaining the common property than the size of the lot in which case lot liability must be determined by the number of bedrooms in the lot.

Meanwhile, lot entitlement in the plan must be allocated on the basis of the market value of the lot and the proportion that value bears to the total market value of the lots.

The OC can resolve to alter the lot entitlement or lot liability through a unanimous resolution of the members. If there is a unanimous resolution of the members, the OC must apply to the Registrar of Titles to alter the lot entitlement or lot liability. The application under subsection (1) to be in the approved form and made within 60 days of the passage of the unanimous resolution.

New disclosure requirements at the first meeting of the OC

A developer will now have to provide the following additional documents at the first meeting of the OC:

  • the building maintenance manual
  • an asset register
  • copies of any warranties or, if copies are not able to be provided, details of any warranties
  • copies of any specifications, reports, certificates, permits, notices or orders in relation to the plan of subdivision.

Note, a common seal will no longer have to be provided.

A developer will also have to disclose the following information at the first meeting of the OC:

  • any relationship the developer has with the OC manager
  • any immediate or future financial transactions that will, or will foreseeably, arise out of the relationship between the developer and the OC manager
  • any specific benefits which the developer will receive as a result of their relationship with the OC Manager

There is also a requirement for the OC to keep minutes of the first meeting of the owners corporation for posterity. The minutes must contain the following information at a minimum:

  • the date, time and place of the meeting; and
  • the names of lot owners present; and
  • the names of lot owners who have provided proxies; and
  • the names of proxies present; and
  • the voting on any resolutions; and
  • the text of all resolutions of the owners corporation made at the general meeting; and
  • any disclosure made by the developer in relation to their relationship with the OC Manager.

Restrictions on contracts entered into by the Developer

The Act introduces the following constraints on contracts entered into by a developer:

  • If the developer appoints an OC manager who is neither the developer or a lot owner prior to the first meeting of the owners corporation, the contract of appointment of the OC manager expires at that first meeting.
  •  If the developer enters into any other contract (other than a contract of appointment for an OC manager) that relates to the OC and benefits the developer, that contract term must not exceed 3 years in duration. However, this restriction will not apply to hotel and resort management contracts.

These changes mean that developers cannot enter into long-term contracts to their own benefit at the expense of the OC, while empowering lot owners to appoint managers and other service providers on terms which represent their best interests.  Note of course that there is nothing preventing a developer from putting forward their preferred contractor(s) for consideration at the first meeting.

One Reply to “New Vic strata laws target cronies and contracts”

  1. Esmeralda says:

    Should those holding Master Keys have a Police Check? I believe they should, to protect residents from opportunists. A check of the car park lets anyone know when someone is out of the building. I believe this has happened in this building. That person has since moved on, suddenly. Was that person caught out?

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