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I am a member of the exec committee of a new development in Melbourne. The exec committee was elected in late February, with the developer and management company holding the first AGM in late November, about one week before the majority of owners settled on their properties.
We have now found out that at the AGM the owners corporation granted a lease to the developer for an area of common property in the basement parking area (about the size of one carspace) to build an IT room for the development company. The lease was signed and sealed in late January, and the developer was given a 30 year lease on the common property for $5. It gets better. The room has a PC server in it for remote data backup and an air conditioner that is running 24 hours a day. This is owners corporation electricity.
Our view is that the developer, while in charge of the owners corporation, assigned to themselves a favourable lease that will disadvantage the owners corporation financially. And that the strata manager failed in his duty to protect the interests of the owners corporation, obviously not wanting to upset the developer for fear of losing future contracts.
We are not sure at this stage what we can do. We believe we can charge the developer for electricity, but it is not stipulated the amount. We feel that in the AGM minutes an amount and term should have been mentioned for the lease as it says nothing other than “grant a lease to company xxxx”. We are not sure if the manager should have investigated if a licence would have beem more approriate, or if given that prior to the granting of the lease that the owners were pursuing him to quickly set up a representative committee that he should have not entered in to the lease until this was done.
We would love any feedback on this and if anyone has experience this before. Thanks.
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I am reminded of A Merchant of Venice. Just think of the electricity as blood.
I’ve never come across this specific situation before but I have seen circumstances where developers have pushed through agreements that were highly advantageous to them … and then lost in court. The chisellers who retained a one square metre space in a new building’s lobby so they could rent it for an ATM spring to mind.
I am not a lawyer and I know even less about Victorian law than I do about NSW legislation. But I did find this in the Victorian Owners Corporation Act.
5. Owners corporation must act in good faith
An owners corporation in carrying out its functions and powers—
(a) must act honestly and in good faith; and
(b) must exercise due care and diligence.I think you would have a pretty strong argument that the OC, no doubt due to ignorance and under undue influence from the developer, acted neither in good faith in regard to the peppercorn rent nor with due diligence with regard to the electricity supply. It’s also arguable whether or not they acted honestly.
Proving the point could lead to a messy and expensive legal battle … or you could just tell my colleagues at The Age who, I’m sure, would love this story.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
@PeterC said:
I am reminded of A Merchant of Venice. Just think of the electricity as blood.I think what Peter means (apart from the quality of mercy not being strained) is that you could tell them they can have the room but you will be putting a meter and timer on the electricity.
Oh, and you might warn them that work on the distribution panel – for OWNERS CORP electricity – could result in electricity outages at random times for unforseeable durations.
I don’t think it would be possible to go in too hard on these crooks. They will threaten to sue, of course, and try to warn the gentler souls in your building that they could lose their homes.
But your response must be: “Please do – let’s get this matter into court where the truth can be heard, published and broadcast.”
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
@JimmyT said:
@PeterC said:
I am reminded of A Merchant of Venice. Just think of the electricity as blood.I think what Peter means … is that you could tell them they can have the room but you will be putting a meter and timer on the electricity.
Oh, and you might warn them that work on the distribution panel – for OWNERS CORP electricity – could result in electricity outages at random times for unforseeable durations…
Actually, without remembering the exact quote or bothering to look it up, my memory of the play is that Portia argues that while Shylock (the developer) has shown he is entitled to take his pound of flesh (the server room), he has not shown any entitlement to take even one drop of blood (electricity), and he must not. IE. There might be a valid claim on the room but no validity to any claim on any supply of electricity. The OC is not obliged to give Shylock any blood/electricity and can prevent Shylock from taking any, even if Shylock/the developer is entitled to use the server room. So, perhaps the developer will need to cart in batteries if he wants to use electricity in the room.
In the ACT:
“S.33 Restriction on owners corporation during developer control periodAn owners corporation for a units plan must not, during the developer control period, do any of the following:(a) enter into a contract unless—
(i) the contract is disclosed in each contract to sell a unit in the units plan; and…
A developer or, if an owners corporation is established for the units plan, the owners corporation may apply to the ACAT for the authority to enter a contract during the developer control period.
The ACAT may authorise the owners corporation entering into the contract if satisfied that the terms of the contract are reasonable in all the circumstances…”You have a very strong claim on several fronts. The Victorian Owners Corporation Act says the Owners Corp is allowed to set up metering for the provision of services to common property (Schedule 1, 3.4).
It also requires the initial owners to act “in the interests of the owners corporation” while they are owners of the majority of the lots.
If you don’t want to waste money pursuing them through the courts, flip the confrontation. Tell them that, if you fail to reach a reasonable agreement, you will be cutting off the electricity supply and if they don’t like it, they can sue the Owners Corp. Check with a lawyer but it looks like you have a number of instances where they have acted wrongly
68. Obligations of initial owner
(1) Subject to sub-section (3), the initial owner of land affected by an owners corporation must act honestly and in good faith and with due care and diligence in the interests of the owners corporation in exercising any rights under this Act.
(2) Subject to sub-sections (3) and (4), the initial owner of land affected by an owners corporation must take all reasonable steps to enforce any domestic building contract (within the meaning of the Domestic Building Contracts Act 1995) entered into by the initial owner in respect of land in the plan of subdivision providing for the creation of the owners corporation.
(3) Sub-sections (1) and (2) apply to an initial owner only while the initial owner is the owner of the majority of the lots affected by the owners corporation and only until the end of the period of 5 years following the registration of the plan of subdivision.
(4) Sub-section (2) applies only to the enforcement of a breach of contract— (a) to the extent that it relates to the common property affected by the owners corporation; and (b) of which the initial owner is aware or ought reasonably to be aware.
(5) In this section “initial owner” means the person who was the applicant for the registration of the plan of subdivision.
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
The threat to “go public” via the media won’t get much traction, if only because the developer knows the media doesn’t usually cover these things (not least because it’s often claim and counter-claim).
If however you map out a strategy for them – you will take the matter to Citizens Advice and then to VCAT and the Supreme Court, if need be, when it will then become a matter of public record that media organisations will feel secure in reporting on, your clear plan and sense of purpose will probably shake them up more than vague threats to do something some time in the future.
A Current Affair or The Project aren’t going to send a film crew around to look at a room the size of a car space.
They will, however, be interested in hundreds of people being ripped off by one of the city’s largest developers. Get your ducks lined up first, then start shooting (I mean figuratively, of course).
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
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