Can an Owners Corporation have an impact on the sale of a property?

Introduction

When buying or selling an apartment or a unit, the topic of the Owners Corporation (OC) always comes up. Lately, there has been more and more discussion around whether an OC can impact the sale of a property or even influence the sale.

Below are some examples of recent situations that our Property Law team has encountered.

Situation 1

The Vendor of an apartment sought advice as to the extent of disclosure that an OC was required to make in the Certificate pursuant to Section 151 (“Certificate”) of the Owners Corporation Act 2006 (“Act”) attached to the Section 32 Statement. The Certificate contained issues about water ingress in the building and suggested that the origin of the water leak was from the client’s apartment. The Vendor was concerned that as there was no conclusive proof that the water ingress originated from their apartment, the disclosure by the OC was premature and therefore had the effect of not only scaring away potential buyers, but also devaluing their property. The matter was further exacerbated as the Vendor was not able to resolve matters directly with the OC committee.

Outcome

This is an issue of balancing the Vendor’s disclosure obligations and the Owners Corporation’s responsibility.

Situation 2

In another matter, a Purchaser’s lender required important building documents to confirm the works undertaken by the OC for cladding rectification in the building, prior to granting loan approval. The OC Manager refused to release relevant documents on the basis that it was outside the scope of information required to be made in the Certificate under the Act. Initially, the Vendor was unable to procure the building documents from their OC, however, after forceful correspondence to the OC by both the Vendor’s lawyer and our Property Law team, the relevant documents were finally released to our Property Lawyers.

What is the role and remit of an Owners Corporation?

In the above circumstances, a key question that comes to mind is that what are the functions and powers of an OC? How and when should these powers be exercised?

The Functions of an OC – Section 4

An OC is regulated by the Owners Corporation Act 2006 (“Act”). Section 4 of the Act states that the ‘Functions’ of the OC include management and administration, repair and maintenance of the common property, taking out insurance, providing  an Owners Corporation Certificate and to ‘carry out any other functions conferred on the Owners Corporation’ by Law.

Additional Powers of an OC – Sections 5, 6 and 7

Section 6 (b) of the Act further extends the ‘Powers of owners corporation’, stating that it has ‘all other powers that are necessary to enable (it) to perform its functions’. Section 5 - imposes a duty on the OC to ‘act honestly and in good faith’ when carrying out its functions and powers and to ‘exercise due care and diligence’.  Lot Owners’ ‘rights and duties’ are defined in Part 7 of the Act which includes compliance with the Act and the rules of the OC.

Maintenance and Debt Recovery – Sections 46, 47 and 49

Sections 46 and 47 of the Act put an obligation on the OC to repair and maintain the common property. Under Section 49, the OC is able to recover as a debt, the costs associated with the repairs and maintenance from the Lot Owners. Any major alterations and repairs require the passing of a special resolution at an OC meeting.

Duty of the OC - Disclosure - Section 151

Despite the above, Lot owners often find themselves in a position where their interests directly conflict with the powers and duties conferred on the OC - a situation which frequently leads to a dispute.

The duty of the OC to disclose important and relevant information under Section 151 of the Act (such as a potential water leak affecting the common area of a property) to potential buyers, clearly outweighs the interests of a Lot Owner selling a property who may be concerned that such a disclosure may influence the sale price. The failure to disclose may also leave the seller open to a breach of their disclosure requirements under Section 32 of the Sale of Land Act.  In Jopam Nominees Pty Ltd v Owners CorporationNo 1 PS 4474926 (Owners Corporation) [2016] VCAT 851, VCAT considered the conduct of the OC in determining whether the OC had engaged in misleading and deceptive conduct by failing to include all the licences in the Section 151 Certificate.    

The OC must act in good faith, and OC managers are subject to rules of professional conduct. An OC Manager must not engage in ‘misleading or deceptive conduct’ which would result in a breach of the Australian Consumer Law and Fair Trading Act 2012.

Resolving disputes between Lot Owners and the OC - Part 10

Part 10 of the OC Act allows for dispute resolution mechanisms with the OC. However, the first step should be to attempt an informal resolution. In the event the issue remains unresolved, a party should proceed with submitting a formal complaint to the OC (with a possible resolution before a grievance committee), failing which, lodging an application with VCAT will be an option.

How Sharrock Pitman Legal can help?

As Accredited Specialists in Property Law, our lawyers  advise Lot Owners, OC Committees as well as Owners Corporation Managers on strategies to resolve disputes which may arise. Where issues cannot be resolved, our Litigation team can provide advise on managing the dispute at VCAT or through the Courts.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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