Buying an Owners Corporation Property in Victoria
Buying a unit, apartment or townhouse may also mean becoming a member of an owners corporation.
This can affect your ongoing expenses, the rules applying to the property and your responsibility for maintaining shared areas. Before signing a Contract of Sale, it is important to understand exactly what you are buying into.
What is an owners corporation?
An owners corporation, formerly known as a body corporate, is created when a plan of subdivision containing common property is registered.
Common property may include driveways, gardens, hallways, stairwells, lifts, foyers, roofs, walls, fences and shared services. The plan of subdivision identifies what forms part of the individual lot and what is common property.
When you purchase a property affected by an owners corporation, you automatically become a member and share responsibility for its administration and expenses.
What should be included in the Section 32 statement?
The Section 32 statement should include an owners corporation certificate and accompanying documents.
The certificate provides important information about the owners corporation, including:
• Current annual or quarterly fees;
• Any unpaid fees relating to the property;
• Approved special fees or levies;
• Proposed repairs, maintenance or other work that may result in additional costs;
• Insurance held by the owners corporation; and
• Any existing or potential legal proceedings affecting the owners corporation.
An owners corporation certificate is only a snapshot of the information available when it was issued. If it is several months old, more recent decisions, expenses or problems may not appear in it.
What are owners corporation fees?
Owners corporation fees are generally used to meet regular expenses such as insurance, management fees, gardening, cleaning, utilities and maintenance of common property.
Some owners corporations also maintain a separate fund for major future expenses, such as replacing a roof, repairing external walls or upgrading lifts.
The amount payable varies considerably depending on the size, age and facilities of the development. Buildings with lifts, pools, gyms, security systems or extensive common areas will generally have higher ongoing expenses.
Low fees are not always a positive sign. They may indicate that insufficient money is being collected for future repairs and maintenance.
What are special levies?
A special levy may be raised when the owners corporation needs money for an extraordinary or unexpected expense that is not covered by its existing funds.
This may include major building repairs, water damage, combustible cladding works, legal proceedings or replacement of expensive shared equipment.
A special levy can involve a substantial payment in addition to the usual annual fees. It is therefore important to check whether any levy has already been approved or whether major works are being discussed.
Responsibility for a special levy may depend on the wording of the Contract of Sale, when the levy was approved and when payment becomes due. You should not assume that the vendor will automatically be responsible for it.
Why should you review the meeting minutes?
Recent annual general meeting and committee minutes can provide valuable information that may not be obvious from the owners corporation certificate alone.
The minutes may reveal discussions about:
• Water leaks or building defects;
• Roof, balcony or façade repairs;
• Fire safety or cladding concerns;
• Lift or security system problems;
• Proposed special levies;
• Disputes between lot owners;
• Complaints about noise, parking or short-stay accommodation; and
• Legal proceedings involving the owners corporation.
You may also wish to inspect the owners corporation’s financial statements, budget, maintenance plan and register before committing to the purchase.
What insurance does the owners corporation hold?
Owners corporations are generally required to hold insurance for buildings and common property, subject to limited exceptions including some two-lot subdivisions.
The certificate should contain details of the current insurance cover. However, owners corporation insurance does not necessarily replace the need for your own contents, landlord or other appropriate insurance.
You should obtain advice from an insurance professional about the cover you will require for your individual property and circumstances.
What rules will apply to you?
Owners corporation rules can regulate how owners and occupiers use their lots and the common property.
Depending on the development, rules may deal with:
• Pets;
• Noise;
• Parking;
• Renovations and alterations;
• Floor coverings;
• Use of balconies and other common areas;
• Moving into or out of the property; and
• Short-stay accommodation.
You should review the rules before purchasing, particularly if you intend to keep a pet, renovate the property or use it for a particular purpose.
What are lot entitlement and lot liability?
Lot entitlement generally determines an owner’s voting rights and share of the owners corporation’s assets.
Lot liability generally determines the proportion of owners corporation expenses that the lot owner must contribute.
These figures are shown on the plan of subdivision. Some properties are also affected by more than one owners corporation with separate fees and responsibilities applying to each.
What if the owners corporation is inactive or self-managed?
Small developments are sometimes described as having an inactive owners corporation because the owners do not hold regular meetings, collect fees or maintain formal records.
However, the owners corporation still exists and common property may still require insurance, maintenance and repairs.
An inactive or poorly managed owners corporation may make it more difficult to arrange repairs, confirm insurance or deal with disputes. It may also mean that there is no accumulated fund available when major work becomes necessary.
Should the property still be inspected?
A building and pest inspection remains important when purchasing an owners corporation property.
The inspection may identify issues within the lot, but the purchaser should also consider the condition of common property and whether major repairs may be required. For larger or more complex developments, additional specialist investigations may be appropriate.
How I can assist
Before you sign a Contract of Sale, I can review the Contract, Section 32 statement and owners corporation information and explain any matters requiring further investigation.
This may include current fees, special levies, proposed works, insurance, rules, disputes and any concerns disclosed in the owners corporation records.
This information is general in nature and does not constitute legal or financial advice. Every property, Contract of Sale and owners corporation is different, and advice should be obtained for your individual circumstances before signing.