The government’s stunning decision to empower owners’ corporations (OCs) to choose for themselves about whether to permit short-term letting in their buildings is a game-changer for owner occupiers and tenants alike across Melbourne.

On January 1 next year, an amendment to the Owners’ Corporation Act 2006 will be assented by Parliament to permit OCs to attempt to pass a rule to prohibit the use of an apartment as short-stay accommodation (but not prohibiting an owner of a unit, or a lessee or sub-lessee from providing a unit as short-stay accommodation if that person occupies the lot as their principal place of residence).

There are a few things to note about these amendments to the legislation.

Firstly, the definition of “short-stay” has been defined as a “continuous period of less than 28 days.”

What this means is that a guest would have to rent a unit for more than 28 days for a continuous stay in order to be exempt from the prohibition.

Secondly, the definition of “place of principal residence” has not been defined by the legislation. So, the Courts or Tribunal may be called upon to clarify this via a test case.

I would speculate that the Australian Tax Office (ATO) definition of “place of principal residence” test would likely be the best source of precedent to adopt. This would require proof that the owner or tenant lives in the unit full-time and that it is their main residence.

Thirdly, if a building already has a rule registered on title by the developer that purports to ban short-stay accommodation, this won’t necessarily and automatically become lawful and enforceable. The building may have to attempt to pass an updated rule to adopt the new terminology and limits created by the new legislation.

Fourthly, if a building wishes to pass a rule to restrict short-term letting, it may choose to do so by way of passing a vote at an AGM or a special general meeting, or it may call for a ballot by way of post or email to pass a special resolution.

Fifthly, the required threshold of voting for passing a rule to restrict short-term letting would be no less than 75 per cent of the total aggregate of lot entitlements. However, if more than 50 per cent of the aggregate vote in favour of the Rule (but less than 75 per cent) then this would be considered as an “interim special resolution.”

The OC may be able to declare the vote as a special resolution if, after 28 days’ notice, not more than 25 per cent of the lot entitlements of the building have objected to the interim special resolution.

Complicated? Yes, of course. Difficult to achieve? For some buildings, yes. Impossible? No, but some buildings will struggle to pass an interim special resolution, if less than 50 per cent of the building bother to cast a vote.

Overall, the amendment to the legislation is celebrated and welcomed by owners and residents alike. For too many years have their buildings been overrun by tourists and unruly partygoers.

Now, finally these buildings have a gilt-edged opportunity to rid themselves of the intrusions to their amenity and privacy, and safety and security.

Hats off to the Parliamentarians of the Victorian Legislative Assembly, who finally listened to the needs of residents and owners. 

With news hitting the public domain almost every other week about a prominent building company going into administration, many in the construction industry are now bracing for a ripple effect of smaller contractors and sub-contractors also pulling the plug.

The COVID-19 pandemic did not just create construction delays for the industry, but it also led to shortages of required building materials, as well as trucking and shipping logistic delays and price increases, too. All of this has created a perfect storm.

With construction contracts, it is usual for developers to engage builders for a fixed price following a tender process. There are penalties in the contract if the builder does not complete the construction project on time as well.

Prior to the pandemic starting, the precedents for these construction contracts did not contemplate a worldwide pandemic affecting a construction project, so the “force majeure” or “act of god” exclusion clauses did not include a provision to cover this situation.

This means that building companies may well be facing the prospect of not only being forced to complete a building contract in circumstances where the price of materials might have increased by 20 to 30 per cent, but also where the developer is enforcing delay damages for failing to complete it on time. No wonder building companies are feeling the pressure.

In the meantime, there is no denying that Melburnians are fascinated by high-rise strata living, as evidenced by the large number of multi-storey high-rise developments that continue to be marketed and sold “off the plan” ahead of being built in and around the city.

However, before signing the contract, some of the most important things for prospective purchasers to consider are:

The profile and track record of the builder and developer

For instance, do they have a history of doing good work in Australia and around the world? Do they stand behind their developments? Do they return to their developments to fix any defects? Are they financially secure?

These matters can be checked via online enquiries. If the developer or builder runs into trouble during the intervening period between the sales contract being entered into and settlement, then there is the risk of the deposit being lost, or the project being cancelled or at least substantially delayed.

Has the developer provided sufficient information about what is being purchased?

For instance, are the architectural plans of the building and common areas no more than generic images? Have the internal furnishings been specified?

Have the running costs of the building been properly specified?

Some owners’ corporations (OC) have had nasty surprises after settlement when it has been discovered that the budget and levies had been overwhelmingly under-estimated.

Will the building be completed in stages and which stage will the unit be completed within?

There can be instances of disruption and loss of amenity for owners that settle early, as they move in while the upper levels of the towers are still being built, with workmen and construction noise continuing for several months after settlement.

Will the building be independently managed?

It’s important to note whether this will occur under a reputable OC management company and caretaker, or does the sales contract provide the developer with the discretion to appoint whomever they like and “lock the OC” into a long-term contract?

Do the proposed rules suit your needs?

With regards to such matters as pets, smoking, and the ability to carry out your own renovations. It’s also very important to establish whether the building be occupied by a serviced apartment operator or hotel.

Do you know whether the apartment will have an obstructed or unobstructed view when completed?

There are always risks implicit with any investment, but with a large choice of apartments currently on the market, potential purchasers can afford to shop around and be “picky” about whom they choose to invest their money with.

Reputable developers with a good track record will do well out of the Melbourne market, while those developers who do not have a good reputation or are new to the market may struggle to get their developments sold quickly, unless they market the building overseas and sell to overseas owners. •

A VCAT decision released last month confirmed the position that any lot owner in a building may file a claim against the Owners Corporation’s policy of insurance.

Furthermore, if the insurer accepts the claim, the money must be paid to the Owners Corporation’s account but must not be withheld by the Owners Corporation or be subjected to arbitrary pre-conditions before payment is made.

In the decision of Powell v Owners Corporation 537738Y, Ms Powell brought a claim for flooding of her lot which the insurer eventually accepted after a protracted complaint to the Australian Financial Complaints Authority (AFCA) and paid the Owners Corporation the sum of $240,000.

However, the Owners Corporation refused to transfer the funds to Ms Powell, until she took steps to prove she was imminently about to repair her lot first.

The VCAT disagreed with the Owners Corporation’s conduct, and made orders that Ms Powell be paid straight away.

The Owners Corporation is however, entitled to deduct the policy excess before transferring the funds to the relevant lot owner by virtue of the new Section 23A of the Owners Corporation Act amendments passed in 2021.

In some towers in metropolitan Melbourne, burst water pipe claims can carry a policy excess of $10,000 and sometimes $20,000 per claim.  

Policies of insurance such as the one under which the Insurance Monies were paid out are arranged by an owners corporation to cover both its common property and the property of the lot owners. Such policies are paid for by the lot owners and are for their benefit. I

n arranging them to cover the lot owners’ properties, the owners corporation acts as the agent of the lot owners. Since the owners corporation is the contracting party, it is to the owners corporation that the insurer should make payment after a successful claim by a lot owner.

Accordingly, the Insurance Monies were received and are held by the owners corporation as the agent of the lot owner.

It is well-established that an agent, who holds funds paid to it for the benefit of a principal, holds those funds as a fiduciary and that the funds will be held in trust on behalf of the principal and paid out at the principal’s request.

The Victorian Labour government has announced a new 7.5 per cent tax on short-stay accommodation, being the first and only Australian state to do so.

The effect of this announcement is a body blow and a real kick in the guts to those apartment owners and residents that have been advocating for reform and regulation in the short-term accommodation sector.

Let’s not mince words here – the new tax does nothing to curb the popularity of Airbnb, nor does it do anything to improve the liveability of neighbours and Owners Corporations that have a desperate problem with the noise and disruption of amenity that short-term stays bring with them.

The new 7.5% tax will be passed on to guests staying in the accommodation. The tax is modest enough to not be too expensive to dissuade customers. Airbnb know this, as do the hosts. As does the Labour government. It will simply be business as usual.

What it does do is further legitimise and entrench the practice of short-term letting in Victoria for 365 days of the year.

The City of Melbourne had earlier announced a proposal to curb short-term letting, and to introduce a cap of 180 nights per year. Well, less than two weeks later the Andrews Government (and Airbnb) have swiftly acted to put that proposal in the garbage bin.

Just when public interest groups such as ‘We Live Here’ had finally managed to persuade the Council to suggest some serious reform in the area, and now Airbnb and Daniel Andrews see fit to intervene.

You have to feel for Airbnb at this time. Less than a month ago, the new laws in New York City to curb short-term letting had finally taken effect, leaving a devastating hole in the company’s revenue.

They had to act quickly, otherwise Melbourne might follow suit. Cue some frenzied lobbying to shore up support from the Labour government, and poof – problem solved.

The Victorian government looks great in announcing this reform – they get good headlines to rave about how ‘tough’ they are on big business, and the feelgood factor of raising money for new social housing will provide a boost in ratings no doubt.

Meanwhile – Airbnb get what they want: stability. They get to know that Melbourne is open for business 365 days of the year.

Not 180 days of the year like it is in Sydney. Not like 180 days of the year, like it is in San Francisco and other parts of California. Not 120 days of the year like it is in Paris, or Barcelona.

Melbourne is the 5^th largest market in the world for Airbnb. They can now watch the revenue roll in for decades to come.

It’s a classic win-win for the government, and for Airbnb. The only losers happen to be, well, everyone else.

So, did the Victorian Labour government get played like a fiddle over this tax, or was it a joint approach? We’ll likely never get answers unless there is an upper house enquiry into how this tax was rushed through in 5 minutes flat. I’m sure there would be great public interest in getting to the bottom of how this happened. I’m not holding my breath though.

In 2022, the sale of Electric Vehicles in Australia accounted for only 3.8% of total sales. However, that number is tipped to soar over the coming years.

The International Energy Agency recently released its 2023 global report, and predicts that sales of Electric Vehicles globally will reach 35% of all sales by 2030.

One of the main factors holding Australia back from a larger uptake is due to a lack of available infrastructure.

However, Owners Corporations can play a leading role in rectifying that particular issue. Apartment building carparks (as well as commercial building and shopping centre carparks) are perfectly suited for adaptation to EV charging outlets.

Some buildings can opt to install a handful of EV charging outlets in visitor parking spaces for common use (and implement a billing system) while other buildings could adopt the functionality of having an EV charger installed in each parking space, with the ability to have the electricity connected to their own individual meters and billed at the end of each quarter.

Those buildings that already have an embedded energy network are well placed to implement a full-building upgrade.

The upgrades to the carpark are not without additional complications however. There is a small additional risk of fire due to the presence of EV lithium batteries and on-site lithium battery storage units.

Owners Corporations also need to be aware of the hazards involved in the parking and charging of the EVs on common property, and because of this increased risk, it may be the case that an upgraded sprinkler system or water supply system would be required to be installed to certain areas of the carpark.

All of this can be adequately addressed by a specialised consultancy or project manager that can assist with these investigations and build into the overall costs of the project.

While most new buildings now provide some EV charging capacity, older buildings should start to engage owners to include the upgrade in forward budgeting and planning. If that means planning for a shared EV station located on common property, a suitably qualified expert should be engaged to determine the appropriateness and type of station and the electricity load capacity of the building. 

Owners corporations should also consider where the appropriate locations for the EV charger stations in the carpark would be, how the costs will be passed on to users, how to manage the daily operation of the EV charger stations (max time limits) and the cost of maintenance and repair.

Certainly, we are well placed in Australia to take advantage of a high uptake in EV sales, especially with high energy costs and high petrol / car maintenance costs. As always, the buildings that continue to innovate and keep pace with technology will hold the most value.

A Court in Sydney has awarded damages of $120,000 to the elderly chairperson of an apartment block, after a tenant sent an email to him and the other owners in which she asked him to stop emailing her about locking her mailbox.

The Court heard the Chairperson had sent  a number of emails to the tenant noting that her mailbox in the building had been left open and requesting that she keep it locked.

This included an email on May 24, 2017, in which he said: "As your mailbox has again been open for the last few days it is obvious I have not been able to convince you of the seriousness of this issue."

The court heard there had been reports of gangs stealing mail in the area. Mailboxes in the building were broken into twice, starting in April 2017.

The Chairperson believed the culprits may have been able to cut a "master key" by examining the lock on the tenant’s unlocked mailbox.

In her email on May 25, the tenant said: "Your assertion/s that a single unlocked mailbox has allowed a criminal milieu to stalk the ... [apartment complex], and spend the time necessary to copy barrels/locks in order to then construct a master key is farfetched [sic]."

She described the Chairperson as having a "fixation on this issue" and suggested that, in light of his "email hobby", he might consider getting sensitive documents such as banking statements sent via email rather than in the post.

Lawyers for the Chairperson said the email defamed him by implying he was a "small-minded busybody who wastes the time of fellow residents on petty items" concerning the building, and that he "unreasonably harassed" and "acted menacingly by "consistently threatening her by email".

They also alleged the email from the tenant suggested the Chairperson was a "malicious person who sent threatening emails to the defendant and copied in other residents" to publicly humiliate her.

The Judge found those meanings were conveyed and the tenant had failed to establish a defence to any of them. This included defences of truth and honest opinion.

"It would be fair to say that every sentence of the defendant’s email in reply struck a blow at the plaintiff, and was intended to ridicule and humiliate him in every way," the Judge said.

She found that the tenant’s evidence was "coloured by exaggerated language, groundless suspicions and hostility".

As a lawyer that practices in Owners Corporation matters, I am not shocked by this decision, even though the facts of the matter may seem trivial.

Defamation law is complicated and convoluted, however it is best practice that one should avoid ever having to get mixed up in a defamation case.

Owners and Committees should reflect on this judgement. I have seen many emails over the years that have been sent by Owners to Committee Members and vice versa that are far worse in language and imputation.

My advice: best to go to bed and see how you feel in the morning before sending that email to the Committee at 9:30pm at night. Calmer heads and more carefully chosen words seem to prevail in these circumstances...

Two recent decisions from VCAT (the decision of Guy, and the decision of Dunn) involving claims by lot owners for compensation from water damage to their units has highlighted the risks that Owners Corporations are exposed to.

In both cases, the claimants reported water damage, but the Owners Corporation dragged their feet in investigating the causes of the water damage.

Pausing for a moment, a number of Committee Members and Strata Managers are under the misapprehension that if the Owners Corporation’s strata insurance policy declines a water damage claim, then that is the end of the matter.

Of course, that position is wrong in law. If the insurer declines the claim, all that means is that the Owners Corporation is unable to obtain insurance coverage for the loss. If the lot owner has suffered loss and damage, then the Owners Corporation is liable at law for that loss and damage.

In both of these cases, the Owners Corporation’s defence in VCAT were that the expert evidence was inconclusive as to the exact cause of the water ingress, and potentially on an interpretation of the strata plan – there was an argument that the water damage originated from lot property, rather than common property.

These legal arguments failed in VCAT, and the Owners Corporations were hit with massive bills for fixing the apartments and compensating for rental losses and damage to furnishings and personal effects.

Some important lessons that Owners Corporations should take away from these two cases are:

1. Failure to take proactive action to properly investigate and address issues concerning the maintenance and repair of common property may result in significant financial penalties as the Tribunal is as concerned with the conduct of the parties in attending to the matter quickly, and will not rescue the Owners Corporation on technical legal arguments; and
2. Supporting expert evidence (especially where there is countering evidence available) or delay caused by the conduct of another party cannot be solely relied upon to absolve the OC of its liability set out in the relevant legislation and case law.

If your OC receives a complaint about an issue with water ingress from the common property into lot property, it is important to first thoroughly investigate the issue, source advice from a reliable expert (and where there is doubt if the issue has arisen because of the common property, then consult a specialist lawyer also) and follow the recommendations provided. Above all it is important that the Owners Corporation does not delay in responding and acting on a complaint as this is the most common way an Owners Corporation can open itself up to liability and be found in breach of its duty.

It was reported earlier this week that the US City of Sedona in Arizona is embarking on a new programme that will pay AirBnB hosts to remove their property listings voluntarily.

The council-approved “rent local” program will provide Airbnb hosts in Sedona up to $US10,000 ($14,511) to remove their short-term listings from the vacation rental company.

There are certain requirements for renters, including having to work for an employer in Sedona for a minimum of 30 days and 30 hours per week.

Retirees and the disabled will also be included in the initiative.

The move is not to discourage travel to the area, but rather to improve housing options for locals amid rent increases and the general uncertainty of the real estate market.

Airbnb hosts renting out properties such as a single room in a shared house will receive $US3,000, and $US10,000 will be given to those renting out three-bedroom properties.

It was reported by the New York Times that Arizona experienced a surge in domestic migration, with 93,000 new residents moving there in 2021. NBC 12 News reported that 15% of Sedona’s homes are short-term holiday lets that are priced at a rate that is unaffordable for locals.

Certainly, in metropolitan Melbourne we are still seeing a ‘glut’ of short-term rental listings throughout apartment buildings all over the city. These listings are just not returning to the long-term rental stock, and this is putting upward pressure on rental prices in Melbourne.

One wonders whether the City of Melbourne and the City of Port Phillip should consider a similar programme. These two local government areas have reported rental affordability issues and have a large number of short-term rentals operating within their boundaries.

Such an initiative would bring welcome relief to essential workers that are finding it difficult to find rental accommodation close to where they work.

It seems the case that only local government initiatives have any hope of making headway against the short-term letting juggernaut that has become so pervasive in Melbourne in recent times.

Certainly, there is almost no appetite within State Government to change the existing rules in relation to short-term letting. The decision by the Daniel Andrews government to permit short-term rentals to operate 365 days per year was so out of the-blue, and so extraordinary in its timing in 2016.

Given the revelations made by the Guardian in relation to Uber’s intense lobbying of the Victorian government to secure favourable regulations to permit their business model to berendered lawful, it would be fascinating to open the lobbyists diaries to check AirBnB’s lobbying efforts during 2015 and 2016.

With an upcoming election in Spring Street, it will be interesting to see whether any of the major parties propose any type of reform here. If they do, no doubt there would be thousands of votes in it for them.

With news hitting the public in late February regarding the construction juggernaut Probuild going into administration, many in the construction industry are now bracing for a ripple effect of smaller contractors and sub-contractors to also pull the plug.

The Covid-19 pandemic has not just created construction delays for the industry, but it has also led to shortages of required building materials, as well as trucking and shipping logistic delays and price increases as well. All of this has created a perfect storm.

With construction contracts, it is usual for developers to engage builders for a fixed price following a tender process. There are penalties in the contract if the builder does not complete the construction project on time as well.

Prior to the pandemic starting, the precedents for these construction contracts did not contemplate a worldwide pandemic affecting a construction project, so the ‘force majeure’ or ‘act of god’ exclusion clauses did not include a provision to cover this situation.

This means that building companies may well be facing the prospect of not only being forced to complete a building contract in circumstances where the price of materials might have increased by 20 – 30%, but also where the developer is enforcing delay damages for failing to complete it on time. No wonder building companies are feeling the pressure.

In the meantime, there is no denying that Melburnians are fascinated by high-rise strata living, as evidenced by the large number of multi-storey high rise developments that continue to be marketed, built and sold ‘off the plan’ in and around the City.

However, before signing the contract, some of the most important things for prospective purchasers to consider are:

1. The profile and track record of the builder and developer. For instance, do they have a history of doing good work in Australia and around the world? Do they stand behind their developments? Do they return to their developments to fix any defects? Are they financially secure? These matters can be checked via online enquiries. If the developer or builder runs into trouble during the intervening period between the sales contract being entered into and settlement, then there is the risk of the deposit being lost, or the project being cancelled or at least substantially delayed.
2. Has the developer provided sufficient information to understand what is being purchased? For instance, are the architectural plans of the building and common areas no more than generic images? Have the internal furnishings been specified?
3. Have the running costs of the building been properly specified? Some Owners Corporations have had nasty surprises after settlement when it has been discovered that the budget and levies had been overwhelmingly under-estimated.
4. Will the building be completed in stages and which stage will the unit be completed within? There can be instances of disruption and loss of amenity for owners that settle early, as they move in while the upper levels of the towers are still being built, with workmen and construction noise continuing for several months after settlement.
5. Will the building be independently managed by reputable Owners Corporation Management company and Caretaker or does the sales contract provide the developer with the discretion to appoint whomever they like and ‘lock the Owners Corporation’ into a lengthy long-term contract?
6. Do the proposed Rules suit your needs in terms of your personal attitude towards subject matters such as pets, smoking, and the ability to carry out your own renovations?
7. Will an area of the building be occupied by a serviced apartment operator or hotel?
8. Do you know whether the apartment will have an obstructed or unobstructed view when completed?

There are always risks implicit with any investment, but with a large choice of apartments currently on the market, potential purchasers can afford to shop around and be ‘picky’ about whom they choose to invest their money with. Reputable developers with a good track record will do well out of the Melbourne market, while those developers who do not have a good reputation or are new to the market may struggle to get their developments sold quickly, unless they market the building overseas and sell to overseas owners.

Cladding Safety Victoria (CSV), the state agency tasked with administering the rectification of residential apartment buildings affected by high-risk combustible cladding, has admitted that there are nearly 50% more buildings in the high-risk category than previously reported.

The statement made by CSV in October, as reported by the Australian Financial Review, confirmed that there are now 735 buildings in Victoria with high-risk combustible cladding in need of removal. This is a large increase from the original estimate of 500 buildings that the Victorian government estimated it would need to fix.

It has become increasingly clear to all involved in the industry that the State government simply does not have the funds, nor the conviction to repair all of the affected buildings. Best estimates would be that between 150 – 350 buildings could be rectified over the next 24 months before the CSV is slated to be wound down.

To prepare owners of buildings for the upcoming disappointment, the Victorian Parliament passed an amendment to the Building Act (known as the Building Amendment (Registration and Other Matters Act) 2021) that now provides Owners Corporations with an enlarged time period of 15 years (from date of completion) to bring a legal claim against the builder or developer or other stakeholders for contributing to costs to remove the cladding.

As readers of this column would remember from previous articles, I have long been taking pot shots at the Owners Corporation Act reforms, because under those reforms, an Owners Corporation will still be required to pass a special resolution or interim special resolution to bring a cladding action (if the cost of the cladding rectification will exceed $200,000).

Most buildings will encounter repair costs in the region of $500,000 - $5 million depending on the size of the building, and the extent of the presence of the cladding.

The net result of all of this to’ing and fro’ing is that there will be a large number of dangerous buildings of an extreme fire risk classification that will remain unrepaired for a very long time. There will also be a large number of buildings that will enter into very expensive remedial contracts to repair their buildings themselves, and the owners within those buildings will face massive costs and high annual fees. There will also be a large number of buildings that will embark upon lengthy and costly litigation to hedge their bets against the high remedial costs, and these legal cases will take years to resolve.

All in all, it is a bonanza for lawyers, insurance firms, remedial builders, project managers and scaffold-hire companies. And this will be to the great detriment and frustration of all those Victorians who own or live in an affected apartment. This will cost countless livelihoods, and will place incredible strain on communities.

The government has a bigger role to play here, and they are failing. The people of Victoria await the government’s response to this issue.

In the major newspapers, there seems to be a negative news story almost every week about the oversupply of apartments in Melbourne, or reasons why the capital values and rents for apartments will continue to fall, or the myriad of reasons why the cladding issues are being poorly managed by the state government and so on.

While I’m sure there is a measure of truth to these stories, I’d like to point out that for a growing number of persons, the decision to purchase an apartment is not simply an investment or a speculation. For a growing slice of the market, people are buying themselves a home. A home for them to live in, and a home to raise a family in, or a home to escape family if downsizing, retiring or moving in from the suburbs.

Owner-occupier rates through the Melbourne area are growing. While investors and ‘rent-vesters’ still comprise the majority of purchasers in the apartment market, anecdotally I am seeing a large increase in the number of owners that simply wish to live and reside in their apartment, and enjoy the convenience and functionality of a life ‘in the city.’

And this growing population of owners expect and demand certain things and have high expectations – things such as a spotlessly clean and striking lobby and common property area, an engaging and deeply positive and personal relationship with their building manager and concierge, higher quality security and security systems, regular communications with their Committee, and frequent upgrades to the common property. And they’re willing to pay for it too. But this is going to lead to a divergence with the investors and rentvesters (especially in a declining market). The annual budgets and the quarterly fees are only going to trend upwards, while the capital values and rental yields may trend downwards slightly or remain static. There are rough seas ahead for many Owners Corporations to pilot in the next two to three years.

In my view, the optimum way to traverse the storms will be to appoint wise and experienced managers with good budgeting and financial acumen, ensure that Committees are stable and to seek out Committee members with a range of skills; the best Committees have a mix of young and old, private sector and public sector working experience, men and women alike.

Committees will need to balance the needs of the investors to keep the annual fees and levies static, while meeting the needs of the owner-occupiers who desire personalized service and rigorous maintenance and upgrade of common property areas.

The buildings that are better at doing this will enhance their reputations and preserve and increase the value of their apartments, while the others will dwindle and fall behind. The gauntlet has been laid down. Sink or swim.

The Victorian Government announced new measures as part of its Budget for the 2021 / 2022 year to incentivise homeowners and investors to speculate on new apartments in the Melbourne area.

The measures include widening the scope of the “off-the-plan” duty concession to cover higher value properties for purchases made under contracts entered into on or after 1 July 2021, resulting in stamp duty savings.

We have also seen an increase in the “off the plan” dutiable value ceiling to be raised from $750,000 for first home buyers to be raised to $1 million to all buyers.

There is also a 100% stamp duty exemption for purchases of new residential property that has been unsold for 12 or more months since completion with a dutiable value of up to $1 million, which includes the Melbourne CBD, Docklands, Southbank, South Yarra and other popular Melbourne suburbs. For a $1million apartment, this represents a saving of $27,500.

This is a positive change for those that wish to buy an apartment to live in, which should hopefully result in increased demand for apartments, particularly in the CBD, and may in turn incentivise developers to green-light construction projects that they might otherwise land-bank and otherwise wait for more favourable conditions.

However, beware home buyers that are looking to purchase a new apartment for more than $2 million, as you should consider whether to enter into a contract before 1 July 2021, depending on eligibility for the ‘off the plan’ duty concessions.

By way of example, in the absence of any duty concessions, a home buyer looking to purchase a premium residential apartment in Victoria off-the-plan for $4,000,000 on or after 1 July 2021 would be liable for duty of $240,000 based on the new premium stamp duty rate.  However, if the off-the-plan contract is entered into before any construction starts, the buyer may only have to pay duty of $55,000, resulting in a saving of $185,000 (approximately 77%).

In the above example, the buyer is in a better overall position by signing the contract on or after 1 July 2021 – if the buyer were to sign the contract prior to 1 July 2021, the buyer would not qualify for the off-the-plan duty concession and would have to pay duty of $220,000 (calculated at the rate of pre-1 July 2021 rate of 5.5%, on the contract price of $4,000,000).

In my view, it is so important to increase the capital values of the existing apartments in Melbourne, as for far too long, the values have remained static relative to say, the cost of stand-alone dwellings.

The answer is not to pump the market with thousands more of new apartments. There is simple demand and supply economics to consider. The Victorian Government needs to understand that investors and owners are rightly worried about combustible cladding, building defects and quality and the relative amenity and liveability of these apartments.

The best incentive to get owners and investors moving back into purchasing apartments is to improve governance, and fix the cladding crisis.

Once capital values start to rise, just you watch. I bet that thousands of existing apartments will start to be bought and sold, because owners and investors will be able to cash in on a capital gain. This will fill the State’s coffers with stamp duty.

I really do think the Victorian government missed the boat here. We all know that stamp duty revenue is needed to repair the budget and pay for all the infrastructure projects this government is committed to.

Instead, it is simply offering incentives to its developer mates to keep the apartment building pipeline going. What a spectacular missed opportunity.

A lot has been written and said about the new amendments to the Owners Corporation legislation, set to commence at the end of 2021.

I’d like to focus this article on an area which hasn’t got much traction and attention as yet, but which represents a big change to how an Owners Corporation must respond to complaints about water ingress from lot owners and occupiers.

Firstly, the law. The new act sets to introduce a new Section 17A into the Act, to clarify that any rainwater or other water that falls, occurs or flows on the common property (otherwise than in a waterway or a bore) is taken to be part of the common property.

Subsection (2) further provides that, for the purposes of section 8(4)(c) of the Water Act 1989, an owners corporation is the occupier of land to the extent that the land is common property, meaning that it will have the right to take and/or use water referenced in subsection (1).

The above wording might seem innocuous, and certainly the passage of water is not a very sexy subject, and it didn’t really attract many comments and objections at the public consultation stage, but consider the following:

Under this new legislation, if there is a burst pipe that causes water to escape onto the common property, then that water is considered to be common property water, and if that water causes damage to anyone else’s property, then the Owners Corporation will be responsible.

Hypothetically speaking, if a pipe were to burst from within an individual unit (say from a dishwasher, shower drains, bathroom sinks etc) and if that were to cause damage to multiple units below, then the Owners Corporation is prima facie, the responsible party to account for all of the loss and damage.

True enough, the Owners Corporation might well be able to claim back from the lot owner or occupier a portion of the costs if it could be proven that the cause of the burst pipe was from lack of maintenance or some other form of mischief as a contributory act. However, the responsibility and the costs of chasing the lot owner or occupier for that contribution might well be economically impractical or infeasible to do so.

I am not sure that the insurers of Owners Corporations will be thrilled by this legislative change. I would say that the insurers are changing the terms of their policies as we speak. Therefore, all Owners Corporations should be aware upon the renewal date of their policies to check the policy wording to see whether they are still covered for these types of claims.

In addition, if an Owners Corporation has the ability to pass special resolutions without too much expense, then my advice would be to pass updated additional Rules to pass responsibility to lot owners for any acts where water is permitted to escape their own internal services and cause damage to other lots and the common property, and to provide a mechanism for the debts to be paid upon demand. It may also be of benefit to consider passing a Rule to ensure that owners and occupiers are responsible for any insurance excess in the event that an insurance claim needs to be made.

Owners Corporations need to be careful to protect themselves, because left unchecked, this updated legislation put the Owners Corporation squarely ‘in the gun’ for future water ingress claims.

We’ve all spent far too much time over the winter months holed up in our apartments working at home, educating at home and living at home.

Home has become our lives, and perhaps not for the better. And so as spring thaws on our winter of discontent, and as restrictions ease somewhat, it is perhaps time to re-think what we need from our apartments and our common areas and facilities, and from the service we get from our facilities managers.

At the very top of the list for the Committees of Owners Corporation has got to be some serious budgetary reform. Without exception, every single service contract has to be renegotiated in order to deliver value for money.

Having acted for Owners Corporations for over 10 years all around Australia, I have said it before and I'll say it again, Victoria is by far the worst state for overinflated service contracts. I have never seen such largesse in any other state or territory. 5 year OC Manager contracts, 10 year cleaning contracts, 20 year embedded network agreements, 25 year caretaker agreements. The list goes on. No other state or territory permits this. Of course, the fault lies with Consumer Affairs for failing to regulate this. They have known about the issue for many years, and have done nothing to bring about reform.

Be that as it may, it is now up to Owners Corporations to investigate all possible options to escape these contracts. Most will be completely unenforceable, and many more will have been void ab initio. Owners Corporations could begin to take charge of their finances and repair the great holes in their budgets, only once they have renegotiated these contracts.

The next step for Owners Corporation Committees is to think creatively. It appears that a very high number of Owners Corporations have deferred their remedial works, painting, and internal upgrades contracts indefinitely, in order to undertake budget reform. While this seems sensible and practical for most buildings, some buildings could actually take the opportunity of the very-quiet economic conditions and could decide to undertake their planned projects (or bring them forward) if they can negotiate very good deals with contractors (who will no doubt be desperate for the work).

Now could also be the time to discuss with your contractors about a re-deployment of services. Perhaps less hours from security or the concierge is required, and the cleaning contractors can be re-deployed to provide more hours to dedicate to extra cleaning.

There may even be some possibilities for the rooftop and unused facades to be used for signage and telecommunications antennae to derive extra income for the building.

Of course, there are only limited opportunities for a building to make costs savings. The fixed costs are sometimes too difficult to move. But if you don’t try, you’ll never know.

In an order published by VCAT at the end of 2019, Your Body Corporate Pty Ltd (YBC) and its Directors, were ordered to repay the sum of $192,465 plus interest for fees it unlawfully deducted from an Owners Corporation’s account upon termination as OC Manager.

The proceedings concerned an Owners Corporation located at Wyndham Harbour, a community of over 800 residential lots.

YBC was appointed as OC Manager to take over from a previous manager for an initial period of 12 months. Its appointment was renewed for a further two years.

However, during the period of YBC’s management, it became apparent to owners that there were problems with YBC’s handling of the accounts and records and administration of the development. An independent auditor’s report confirmed that the accounts could not be verified and that the financial reports did not represent a true and fair view of the financial position of the Owners Corporation.

When it became apparent to YBC that it would be terminated at an upcoming Special General Meeting, and that an overwhelming number of votes would support its termination, YBC prepared an invoice for the sum of $192,465 representing the balance of its management fees and future disbursements. Because it still operated the Owners Corporation’s trust account, the Manager made the decision to immediately pay itself that sum from the Owners Corporation’s maintenance fund.

It did not inform the Owners Corporation of the invoice, nor did it disclose that it had transferred the funds. It did not have the approval of the Owners Corporation to make this payment to itself.

In addition, at the time YBC made the payment to itself, the Owners Corporation had not yet given a notice to terminate the Management Agreement.

It can also be revealed that YBC then transferred the $192,465 payment from its business account to its directors one week later.

Three weeks later, YBC advised the Owners Corporation that it could collect its accounts and records from its office and that it had ceased to provide services to the Owners Corporation. This was strange because the Owners Corporation still had not terminated the Agreement.

Nevertheless, the Secretary collected the books and records and funds from the Manager’s office. The payment of the $192,465 by YBC to YBC was not contained within the financial records provided to the Owners Corporation. YBC maintained in the VCAT position this was an “oversight.”

Two months after the transfer to itself, YBC applied to be de-registered as a company.

YBC returned total funds of $325,423 to the Owners Corporation. This represented a $500,000 loss of Owners Corporation funds in a two year period.

VCAT found that the Manager was in breach of its statutory and contractual duties to act honestly and in good faith with due care and diligence.

VCAT also found there was a gross failure to maintain proper financial records and to manage the financial affairs of the Owners Corporation.

The payment by YBC to itself was all the more egregious because it was from the Maintenance Fund, which is a protected trust fund for the benefit of the owners for the capital repairs to common property.

VCAT also found that the removal of the Owners Corporation’s funds were without any legal entitlement authority or consent was unconscionable conduct under the Australian Consumer Law, and found that the Owners Corporation were permitted to join the directors of YBC to the proceeding in their personal capacity for their role in participating in the unconscionable conduct.

This decision should act as a precedent to stop any other Manager from deducting or paying itself fees upon termination of the contact. Even if there is a clause in the agency agreement which permits the payment, it is likely that such a clause is invalid and in breach of the Australian Consumer Law.

OC Managers all across Victoria should familiarise themselves with this decision.

Strangely absent from the new Bill that was introduced into Parliament in the middle of September was a raft of consumer protections that would have prevented builders and developers from running roughshod and trampling over the legal rights of owners settling on new apartments.

For starters, the Labour government has ignored submissions from advocacy groups such as Strata Community Australia and ‘We Live Here’ to reduce the threshold for commencing legal proceedings from a special resolution to an ordinary resolution (like in NSW and Queensland and other states). Instead, they have reduced the threshold to an ordinary resolution, but only if the legal proceedings are within the civil jurisdictional limit of the Magistrates Court ($150,000 or less). So, if an Owners Corporation is faced with a serious management dispute, or a building defects claim, or an issue with the safety of the cladding, then the Owners Corporation has no choice but to try and pass a special resolution (which of course are notoriously difficult, if not impossible to achieve).

Nowhere else in Australia imposes such a large obstacle to Owners Corporations for seeking legal redress. It acts as a barrier to justice and is an affront to civil liberties. Despite clear submissions and case studies being put to Consumer Affairs to the Minister, these pleas have been ignored. One can only conclude this is due to the need for this Government to cosy up to Developers and Builders.

Its’ interesting also, to see that a clause has been entered into the Bill that would have the effect of preventing a Developer from signing the Owners Corporation up to a contract for more than 3 years into duration.

Hooray, I might hear you say. That means those crooked 10 year embedded electricity contracts will become a thing of the past. The same as those 10 year cleaning contracts, or those 25 year caretaker contracts, or those 10 year ESM contracts or those 99 year serviced apartment / letting agreements.

Well, no. The exact wording of the clause requires that the developer is prevented from entering into these types of agreement, only if it “benefits” them.

Now, I’m not exactly sure how an Owners Corporation is supposed to easily obtain evidence about this. If there is a commission payment or a kickback paid to the Developer, there is hardly going to be a clause in the official contract about this. Nor will there be a proper disclosure or receipt being made. What if the payment is made to a related company of the developer? Or to the developer’s wife or son? A family trust? A cash payment via an intermediary? A donation on behalf to a charity or school? Works in kind?

Hmmmmm. It seems this new clause is not going to stop Developers and their mates from signing up to these crooked contracts at all.

Again, clear and cogent evidence and case studies were put before the Consumer Affairs Minister and her Department about the need to just put a long-stop on these agreements altogether. Make them 3 or 5 years maximum, that’s it.

However, the decision by the Government to ignore this recommendation means that it must have been done deliberately. One needs to ask Parliamentarians the question – what good defensible reason is there for a developer to sign up an Owners Corporation to a contractor of their choice to a binding contract for between 10 – 50 years? How is such a contract in the public interest?

The answer. It’s not. It’s only in the developer’s interest, and the contractor’s interest.

So much for this Consumer Property Law Review being about the owners and residents in High-Rise buildings. It seems the Review was more about ticking the box and further entrenching the rights of the rich and the powerful.

A great shame, and a great waste of time for all involved.

There is a very interesting proceeding winding its way through VCAT presently, and once determined, it will no doubt have seismic consequences throughout Victoria for Owners Corporations and their relationships with Caretakers, Building Managers and Concierges.

The proceeding involves two Owners Corporations in the same large development in Mount Alexander Road, Travancore, alleging that agreements to appoint a building manager entered into by the developer (initial owner) -  Bensons Property Group at the Inaugural AGM, are invalid.

The Owners Corporations claim that the terms and conditions of the contracts were most disadvantageous to owners. Principally, that a 10 year duration of the contracts are excessive, and that the fees and charges payable to the building manager under the contracts are also excessive.

The Owners Corporation allege that Bensons Property Group breached their duties under the Owners Corporation Act to act honestly and in good faith with due care, skill and diligence in the Owners Corporations’ interests, and acted in breach of fiduciary duties owed to the Owners Corporation and all original owners.

It is indeed very common for developers to act on behalf of Owners Corporation to enter into service contracts on non-competitive terms and bind the Owners Corporation to potentially long-term inequitable arrangements. And not just for building management services. Bulk electricity, gas and hot water service contracts, as well as essential services and fire service maintenance contracts are all now under the microscope with this proceeding.

Some bulk electricity agreements that I have seen from clients can run for terms of up to 25 years, and the longest Caretaker contract I have come across sought to bind an Owners Corporation for up to 55 years to the Caretaker.

In a interlocutory decision recently handed down by Senior Member Vassie, Bensons Property Group had its application for summary dismissal of the proceeding dismissed, meaning the matter may now proceed to a final hearing.

Bensons Property attempted to have the proceeding dismissed on the basis that the two Owners Corporations were unable to pass interim special resolutions to bring the claim in VCAT.

In Victoria, an Owners Corporation must pass a special resolution (or interim special resolution) in order to bring a legal proceeding in the OC’s name.

In this case, the Owners Corporations passed the interim special resolutions by ballot. The Chairperson nominated himself as the returning officer to count the ballot forms and to declare the outcome of the ballots. Interestingly, by doing so, the decisions made by him as Chairperson are only amenable to challenge if (i) a decision was made in bad faith, or (ii) the Chairperson made an error of law by reaching a decision that was so unreasonable no other Chairperson could reach.

In this instance, there were multiple ballot forms filled out by owners where only one of the co-owners of the lot signed the ballots. However, the Chairperson declared the votes as valid, and counted them towards the final outcome of the special resolution.

Bensons Property contended that if these votes were invalid, then the interim special resolutions did not pass and the proceeding against them could be dismissed.

In ruling against Bensons Property, VCAT backed the Chairpersons’ declaration, finding that “there is no provision in the Act about how a vote for a co-owned lot is to be treated, other than section 90 [which directs that joint owners of a lot have only one vote between them]”.

VCAT found that “there is no general principle that a document signed in respect of a co-owned lot must be signed by all owners in order to be effective.”

While it is always best practice for joint owners to sign a ballot form or proxy form, this case shows that a ballot or proxy will not be invalid even if signed by only one owner, unless the Chairperson declares it so.

NCAT has changed its requirements for an Owners Corporation in lodging any application for Orders under its Strata Community Schemes division.

The key changes are as follows:

• When lodging an application, an owners corporation must provide evidence that the application has first been authorised by a meeting of the strata committee or a meeting of the owners corporation. If this is not provided at time of lodgement, the application will be rejected;
• If all lot owners are affected by the orders that are sought, the owners corporation will need to notify all lot owners about the application and any affected lot owners will be given an opportunity to be joined as a party to the application.

Strata Managers will need to be organised to ensure that meeting minutes are provided prior to lodgement.

In addition, Owners Corporations will need to be aware that it might be required to post copies of the application to all owners (or send by email if owners have nominated an email address) and will need to be budget for those increased administrative and postal costs.

Of all the issues being raised in the public eye following the evacuation of Mascot Towers in Sydney due to structural engineering concerns, one issue in particular is troubling me greatly.

The Owners Corporation held a policy of insurance for alternative accommodation to be paid out should there be such an event that triggered the claim. However, the insurer denied the claim on the basis that the Owners Corporation hadn’t disclosed the full extent of the structural engineering concerns to the insurer when the policy was renewed.

Given that there are 122 apartments in the block (at a cost of $150 per night for alternative accommodation) the insurer is saving itself nearly $20,000 per day (and over $800,000 at the time of publishing this article).

Because of the insurer’s stance, the NSW State Government has made the extraordinary step of offering an interest free loan to the residents to cover their alternative accommodation, but there is no guarantee this will be provided to any other building should this happen in the future.

What will rankle with each and every owner and resident in the building is that they have paid a high sum of money for their insurance premium, but because of the insurer’s stance, they have been left high and dry and without insurance coverage at this very important time.

And in Melbourne, another residential high-rise building overlooking Spencer Street station was evacuated two weeks ago due to an issue that short-circuited the building’s power and heating. There is no word yet as to whether the insurer is going to accept that particular claim for the resident’s alternative accommodation costs, as this particular claim is still being researched by the insurer.

Elsewhere, in Cannonvale, Queensland, an Owners Corporation suffered extensive damage as a result of Tropical Cyclone ‘Debbie’ in March 2017. The insurer had, only a few days before the cyclone, issued a Residential Strata Insurance policy, as it had been up for renewal.

After the cyclone damage and after the claim had been notified, it became apparent when the insurer searched records that there may have been pre-existing defects in the building to the common property eaves and soffits and to the trusses and tie downs of the building. The insurer claimed that the non-disclosure of these defects by the Owners Corporation at the time of renewal means that the insurer could reduce its liability to ‘$nil’ based on non-disclosure and misrepresentation. This matter is now being determined in the Federal Court, to test whether insurers can reduce their liability to $nil if an Owners Corporation has not disclosed material facts and circumstances about their building, pursuant to Section 28 of the Insurance Contracts Act 1984, or whether an insurer is obliged to nevertheless process the remainder of the claim, and reduce the total by a certain percentage or formula.

There is an emerging pattern of evidence that is suggesting that insurers are seeking to decline major insurance claims on the grounds of non-disclosure of matters that might heighten the building’s risk.

In my view, Committees need to ensure that when the Strata Manager is renewing insurance, it should insist on a meeting with the broker, OC Manager and Committee (and take notes at that meeting) so that each and every relevant matter can be disclosed to the broker. If there is not clear evidence of this process, there is every chance that in the event of a major claim, the building might not get its claim approved.

The practice of many Strata Managers is for the broker and the Manager to simply ‘arrange’ for insurance between themselves. Often, the entire arrangement is simply done by exchange of email or over telephone. In my view, this practice needs to cease. At the moment, insurers get to have it both ways, by acting ‘casual’ when it comes to arranging insurance renewals, but then act formally and forensically when it comes to processing the claims that arise.

Under the standard SCA agency agreement, Strata managers might be potentially indemnified by the Owners Corporation if they don’t manage this process properly, however the indemnity clause has not been tested and there are exceptions if there is negligence involved.

In this environment, if an Owners Corporation was denied an alternative accommodation claim on the basis of non-disclosure of defects, it is quite possible the Owners Corporation could decide to sue the strata manager and test this clause out. In my view, Strata Managers need to tighten up the disclosure process with brokers and involve the Committees more in order to avoid the possibility of being sued.

There has been zero publicity to date about a very important case that is currently before the Federal Court.

If the result of this case goes in the insurer’s favour, then it will send a shockwave through the strata management industry in Australia.

The facts are relatively simple:

An Owners Corporation in Cannonvale, Queensland suffered extensive damage as a result of Tropical Cyclone ‘Debbie’ in March 2017.

Strata Community Insurance (SCI) had, only a few days before the Cyclone, issued a Residential Strata Insurance policy, as it had been up for renewal.

After the damage and after the claim had been notified, it became apparent when the insurer searched records that there may have been pre-existing defects in the building to the common property eaves and soffits and to the trusses and tie downs of the building.

The insurer claimed that the non-disclosure of these defects by the Owners Corporation at the time of renewal means that the insurer could reduce its liability to ‘$nil’ based on non-disclosure and misrepresentation. The insurer then put a certain lower offer to the Owners Corporation to accept.

The Owners Corporation refused to accept the offer put by the insurer, and has now challenged the insurer’s decision to decline the major part of the cyclone damage claim.

The Hearing will be heard in the coming months.

At the heart of the Hearing will be the central issue as to whether insurers can reduce their liability to $nil if an Owners Corporation has not disclosed material facts and circumstances about their building, pursuant to Section 28 of the Insurance Contracts Act 1984, or whether an insurer is obliged to nevertheless process the remainder of the claim, and reduce the total by a certain percentage or formula.

In the context of insurers increasing their premiums dramatically for buildings where there are major defects (such as ACP cladding) this case will be very important for the entire industry.

Our firm is aware of a new trend in insurance claims processes whereby the insurers are relying on these ‘minor’ non-disclosures as method or tool for asserting their liability be reduced to $nil. The insurers’ tactics then appear to be to issue a very low offer to owners to accept the claim and to sign a release.

If the Owners Corporation is unsuccessful in the current proceeding, I expect this insurance claims process to become more and more widespread.

As for strata managers, extra care and time needs to be taken when answering the disclosure questions from the brokers upon renewal time. If need be, strata managers should take advice from a lawyer as to whether certain issues about the common property need to be disclosed, and if so, how best to do it.

A failure to manage this process properly, could lead to a claim by a disentitled Owners Corporation against the strata manager and its PI insurance policy.

It’s an insurance merry go-round at the moment. As the property market tightens, and as the global economy contracts, we expect insurers shall flex their muscles to decline more and more claims across all industries: property, motor, marine and the like.

[Delor Vue Apartments CTS 39788 v Allianz Australia Insurance Ltd [2019] FCA 639]

More builders and developers will choose to “go bust” instead of being held accountable to Owners Corporations for dodgy building defects

An Owners Corporation recently found out the hard way, when the builder it had taken to VCAT for building defects slipped into voluntary liquidation shortly before the Hearing commenced, leaving the Owners Corporation out of pocket and unable to chase any other wrongdoers in the matter.

In my view, this is a cautionary tale for consumers and investors of apartment buildings and the lessons ought to be heeded by other Owners Corporation otherwise the same thing could happen to them.

Ascot Constructions Pty Ltd [In Liq.] constructed a three-storey residential apartment building in 2011 at Caroline Springs. Soon after the occupancy of the brand-new building, complaints about defects including water leaks, blocked pipes and flammable cladding emerged. It took the Owners Corporation three years to bring proceedings against the builder for damages in respect to the defects and a further three years before the claim was finally set to be determined at a hearing in VCAT in late 2018.

The architect and building surveyor had also been joined to the claim but had ultimately acted to settle their share of the liability before the Hearing outside of the proceedings.  

The OC was left with approximately $2million in out of pocket costs, and the building company tipped itself into voluntary liquidation shortly before the commencement of the VCAT hearing. This meant that VCAT was left with no option but to strike out the Owners Corporation’s claim, leaving the OC with no way of recovering the outstanding costs from the builder.

Three key lessons can be taken away from this experience. OCs and owners that find themselves in a building defects dispute with a builder should:

1. Act quickly to bring a claim against the liable parties. One of the problems in the case above, was simply the amount of time that it took for the OC to commence proceedings.
2. Retain good building experts and engineers to provide the OC with accurate and timely reports that can be used as evidence in legal proceedings.
3. Be open and flexible in negotiations and settlements because of the unavoidable danger of the respondents going into liquidation.

Ascot Constructions is not the only recent example that OCs have to learn from. Hickory (a large construction company) placed its subsidiary H Buildings Pty Limited into voluntary administration in late 2018, around the same time as 13 claims for the rectification of cladding and building defects were being made against it by various Owners Corporations in VCAT. It should be noted that Hickory say that its subsidiary was liquidated due to unrelated mounting legal costs in an unrelated case in Western Australia.

In the meantime, if a defect arises in your building be sure to use the small window of opportunity to bring a claim, do your due diligence on the ability of the builder and other concurrent wrongdoers to meet the costs of the claim, and remain open minded and practical when conducting negotiations and settlements.

Victorian consumers of plumbing services might be surprised to learn that they are protected by the most comprehensive statutory protections in Australia.

The Victorian Building Authority requires that plumbers cannot be licensed to carry out any work unless they hold insurance coverage against defective plumbing work, trade practices liability, the non-completion of work as well as public liability insurance.

The General Insurance Order 2002 that applies to these matters (‘known as the Ministerial Order’) also provides full coverage for legal and expert costs incurred by a property owner in making a claim against a plumber.

Multiple occupancy dwellings such as apartment buildings can suffer from quite serious plumbing defects, ranging from pan siphoning and water pressure issues, to crushed pipes and installation of faulty metering, through to roof guttering and defective designs and / or installations of downpipes.

There is a strict time limit of six years to bring a claim under these warranty insurance provisions, and consideration and advice should be taken form a lawyer to ascertain the exact date as to when the policy coverage commenced.

One of the advantages of this warranty system over the other schemes in Australia is that the plumber does not have to be dead, disappeared, insolvent or not practicing anymore before any claim can be made against the insurance policy.

True enough, the insurer has rights to compel the plumber to rectify any defective plumbing work, but that doesn’t limit or stop the claim from being accepted if the plumber refuses to do so.

The interesting part about all this is that many of the insurers that offer these policies seek to limit their exposure by setting an upper limit of $50,000 per apartment or up to $5 million in total. However, the Ministerial Order makes it clear that any monetary limit on the indemnity is prohibited for loss or damage, error of design and the costs of inspecting and repairing the plumbing work.

The Building Act also confirms that the Ministerial Order trumps the terms of any insurance policy, to the extent of any inconsistency.

What this means is that consumers have access to an unlimited liability insurance policy for the rectification of defective plumbing work. 

But does all this sound too good to be true? Well, yes, yes it does. The insurers would certainly never have offered these insurance policies to plumbers in the first place if it thought they were exposed on an unlimited basis.?

However, there may be a reason why the Ministerial Order has never been challenged in an open Court or Tribunal decision, despite the Order being around for 20 years.  Insurance claims in these matters are mostly settled well before the proceedings are heard in Court. So it seems that insurers are reluctant to seek guidance from the Court about the application and interpretation of the Ministerial Guideline.

As always, Committees should ‘plumb to new depths’ by seeking advice from a lawyer on these matters, and should consider whether they might have a claim against a plumber for either faulty workmanship or design issues.

I would also recommend ‘fauceting the issue’ by engaging a properly qualified forensic plumbing consultant on these issues, as it tends to be a highly specialized field.

The Minister for Planning Richard Wynne, has announced new reforms to reduce the cost of removing dangerous combustible cladding from buildings, noted as “the first of its kind anywhere in the world.”

The reforms include amendments to the Local Government Act that will create what is called ‘Cladding Rectification Agreements’ (CRAs).

The CRAs will be between Owners Corporations and local councils – providing long term, low interest loans to pay for building work to rectify cladding.

Effectively, owners would be charged via their rates over a minimum period of 10 years, with costs transferred with the property if owners sell.

This arrangement was a key recommendation of the Victorian Cladding Taskforce (the VCT) established last year and chaired by former Premier Ted Ballieu.

What stinks to high heaven about all this? Well, for starters, its because the VCT was made up of stakeholders comprising Architects, building material suppliers, Real Estate Agents, Builders, Developers, Engineers and Building Surveyors.

Absent from the taskforce stakeholders’ table was the one group that perhaps needed to be represented the strongest – the poor old owners of the affected buildings themselves, Mr and Mrs Joe Public.

The closed recommendations of the VCT were always going to be skewed towards an outcome that recommended no fault to the actual wrongdoers that were responsible for installing the combustible cladding in the first place.

Because the VCT and the government have not put in place any stronger consumer law protection reforms to widen the ability of Owners to sue wrongdoers, the Owners Corporations themselves are now left to their own costs of fixing the issues with their buildings.

Over 100 building orders have been sent by the Victorian Building Authority to date, while it finalises its audit of all buildings in Melbourne.

A number of other significant recommendations came out of the interim report, including a proposed statutory duty of care on building practitioners, including architects and designers, in the residential strata sector. However to date, none of this has been implemented.

The Victorian Cladding Taskforce (VCT) released its interim report into highly combustible aluminium composite panels (ACP) and expanded polystyrene (EPS) on 1 December 2017. The products, which have been widely used since the 1990s, have been implicated in a number of blazes including the fires at Dockland’s Lacrosse building and London’s Grenfell tower that claimed the lives of 71 people.

The interim report made a number of key findings and recommendations to government, chief among them being the ban of ACP and EPS cladding on buildings of two or more storeys that are residential, health-care, assembly or aged care buildings, and buildings of three or more storeys that are office, shop or storage buildings. A number of other significant recommendations came out of the interim report, including a proposed statutory duty of care on building practitioners, including architects and designers, in the residential strata sector.

As we approach the holiday season and look forward to a well-earned break, it is perhaps important to reflect on the year that’s been and to cast an eye to 2018, which is shaping up to be an important year for those who live in Owners Corporations.

At the absolute top of the list of key events in 2017, was the tragic incident at Greenfell Tower in London. A massive loss of life, and as it is now emerging as the public inquiry starts, a tragedy that could have been minimised or avoided altogether.

In response, the Victorian Government immediately launched its own review into the issues of flammable alucobest cladding which has been installed on an estimated 5000 buildings in Victoria alone, according to the ABC’s Four Corners programme. Now, one wonders why the Victorian Government did not launch this inquiry two years earlier after the Lacrosse fire. The answer is because of course, no person died in the course of the Lacrosse evacuation, however the alucobest cladding issue and the consequent risks to life safety were certainly brought to the industry’s and the authorities’ attention at that time. Still, its’ better late than never that the Inquiry has been launched, and Owners Corporations will watch on with interest as the stakeholders work through the issues and release a policy response.

The other big issue that came out of 2017 was the sting in the tail of the 2016 Balcombe decision from the Supreme Court. Readers will no doubt remember the ruling of the Supreme Court was that Owners Corporations have no statutory powers to create and enforce certain rules that prohibit certain activities and conduct by persons within lots. This case centred on a Rule which restricted short term letting, however the application of the case and the legal principles within it has spread to a number of other situations. VCAT released several decisions in 2017 striking down the validity and enforcement of certain Rules relating to the use of parking spaces, commercial activities within lots, use of common facilities such as pools and gyms, restrictions on pets and the enforcement of security measures within buildings.

Another issue that Owners Corporations were waiting for in 2017 was the resolution of the short-term letting issue. Alas, the government has made no decision on proper regulations for the short-term letting industry after the Bill was defeated in the Upper House of Parliament following sustained submissions and pressure from Owners Corporation advocacy groups. The decision by Government to reintroduce the Bill in December 2017 without making any amendments at all (but rather seeking to put the boat out by announcing a review 2 years after the Bills passes) has to be seen as a failure by the government to listen to persons living in Owners Corporations.

As for 2018 and the Year ahead, well let me gaze into the crystal ball and cast some predictions for Owners Corporations and the people that live within these communities:

• The Victorian flammable Alucobest cladding inquiry will conclude as a farce, with stakeholders and experts unable to agree on robust solutions and liability for the industry, leaving Owners of buildings with the sole responsibility to remove the flammable cladding and to raise special levies themselves to fix the issue, or bring legal proceedings if they can;
• A Superior Court will make another decision on the short-term letting issue, and the ability of Owners Corporations to pass and enforce Rules to restrict the lots from being used as quasi-hotels, leaving all parties even more confused in the absence of guidance from Government;
• The amendments to the Owners Corporation in respect of short-term letting will be defeated again by the Upper House, completing the Labour Government’s embarrassment. The Government refused to implement a single amendment as recommended by the Upper House. Thus, the Bill is doomed to be consigned to the wastebin. In an election year, no Party would want to put their name to this legislation, and risk voter backlash.
• The current Victorian Government will also delay attempting to pass its reforms to the Owners Corporation Act, again due to the election and the risk of backlash. This legislation has been completed and has been sitting on the shelf for 12 months (parts of it were completed 3 years ago). The reforms are long overdue, but there is concern from Owners Corporations that the reforms do not favour them, and instead favour the OC management industry, as well as developers and builders.
• On a more positive note, Owners Corporation committees will continue to build relationships with other buildings and with advocacy groups and form together to create a powerful and unified voice to engage with Government constructively and positively to seek solutions to the issues that concern them. Leadership for the industry shall come from within.

Happy holidays to all, and see you in 2018.

If you’re a Baby Boomer serving on your Owners Corporation’s Committee, you may have already begun noticing a shift in the characteristics and tendencies of your fellow members and neighbours. Don’t call me, just email or text.  Can I pay my levies online?  Our community needs to “go green”!  Do we have a Facebook page?

These are just a few of the comments and questions you may have heard from the younger generation of Millennials within your Owners Corporation

Defining the Generations (all age ranges and numbers are estimates)

• Baby Boomers are the demographic born roughly between the mid 1940s thru the mid 1960s and make up approximately 24% of the population. One of the defining characteristics of Baby Boomers is a strong work ethic.
• Generation X are the demographic born roughly between the mid 1960s thru the late 1970s and make up approximately 13% of the population. One of the defining characteristics of Gen Xers is entrepreneurship.
• Millennials are the demographic born roughly between the late 1970s and mid 1990s and make up approximately 22% of the U.S. population. One of the defining characteristics of Millennials is an affinity for technology.

Whether you’re ready or not, Owners Corporations need to start preparing for a generational shift.  Over the next 10 years, Millennials will possibly overtake Baby Boomers in terms of home ownership percentage.  As a result, Owners Corporations will begin to change to reflect the attitudes/wants/needs/personalities of their members.  So how can your community “Bridge the Generational Gap”?

The following list, although far from exhaustive, contain a few useful tips to help your Owners Corporation bridge the gap:

• The literal “bridge” between the Baby Boomers and the Millennials is Generation X. Gen X’ers within your committee may prove a useful resource in relating to the both younger and older community members.
• Seek input and participation from representatives of each group. Even if your Committee does not include a particular generational representative, make an effort to include members of each group in the decision-making process.
• The “Notice” conundrum. Many of our clients, especially those with younger committee members, are eager to shift towards electronic notices, voting, etc.  Although this can be convenient for most, the Association needs to careful that (1) they are complying with the applicable Victorian laws; and (2) that the minority (those who do not use computers or email) are still accounted for, i.e. hard copies are not yet a thing of the past.
• Plan Ahead. For larger initiatives that appeal to Millennials, such as “Green” initiatives or electric car parking, the community will need to take a longer term approach to ensure that such initiatives have the support of the community and are budgeted for appropriately.
• Delegate Wisely. If members of the Owners Corporation are eager for a stronger online presence, appoint a computer savvy Millennial to head a social medial campaign.
• Understand and embrace the generational differences in your community. A “my way or the highway” attitude will almost never result in a positive outcome.

Tom Bacon October 2017

The Owners Corporation Management industry is well overdue for a shake-up. Even the very best managers that I deal with agree that the cowboy managers out there in strata-land (are there are a few of them) are spoiling the industry.

Consumer Affairs Victoria has legislation all drawn up to clean up the industry to introduce much-needed regulations and reforms. However, this legislation has been collecting dust on the bookshelf at Exhibition Street for the past 3 years. The current government has seen fit to delay the introduction of these reforms until at least 2018 when the Owners Corporation Act reforms are introduced. It remains to be seen as to whether these reforms will even be introduced prior to or after the next election, and if the current government is returned by the people of Victoria.

In the meantime, Owners Corporations will just have to continue muddling through.

I advise my clients that a building is only as good as its building manager, cleaning staff and OC Manager.

These three ‘run’ the building’s daily operations, and should leave the Committee to simply administer the building by approving quotations, periodically checking expenditure to ensure the budgets are being adhered to, and to provide further instructions to the Manager. Pretty simple stuff really, huh?

Committees that don’t have the above management model flourishing in their buildings need to look very carefully at the roles your Managers are playing, and what their expectations are. A good place to start will be the source documents and the standing delegations to the manager that would have been provided by the developer at the First Annual General Meeting (FAGM) or by a earlier Committee decision.

The OC Managers contract (which should be in the approved form) will contain the schedule of duties that the OC Manager must perform to earn the base fee. The contract will also contain the duties that Manager shall perform for an additional hourly rate.

Committees should also take care to review the Minutes of the FAGMs and any early Committee meetings where the developer controlled the Committee, as the minutes of these meetings will likely specify the standing delegations (if any) that have been provided to the OC Manager.

If those delegations stretch too far (or not far enough as the case may be) then these can be reviewed at the next AGM for the building.

The terms of appointment, and the procedure for automatic rollovers and extensions should also be well understood by the Committee. Moving from one OC Management company to another can be a very stressful and laborious process. It is best practice to start this process early and with strong communication to the current OC Manager about performance expectations.

Finally, communication is a two-way street. OC Managers have a lot of experience in acting for hundreds of buildings and they are best-placed to provide case studies and help to solve problems for Committees by suggesting solutions that have worked for other buildings. Remember, there is hardly ever a unique situation that has not been before at least a dozen other buildings before. Having said that, nothing surprises me in the strata industry these days…

In the middle of the day a few weeks back, and in the midst of my busy professional life running a legal practice in this increasingly complex area of law, I received a phone call that stopped me in my tracks.

It was a call from a locum, ringing in on behalf of an Owners Corporation Manager that I was dealing with on a few matters for various clients. The locum explained that the Owners Corporation Manager had gone missing. No one had heard from him in a week, and the police were involved. The whole office where he worked was in shock.

In my experience, the Owners Corporation Manager was a great bloke. Professional, down to earth, committed and caring. All of the right qualities for a successful Manager.

It occurred to me, having re-read some of the more recent email correspondence between that Manager and his clients over the weeks and months leading up to his disappearance, that the workload was becoming an issue. Cracks were appearing, tempers were fraying, and you could see the unrealistic expectations being placed on both this manager and the clients.

Mental health issues in the professional industries such as law and accounting are getting a lot of attention and media coverage these days, and for good reason. But mental health issues amongst strata professionals are not well- ventilated, and this needs to change.

The strata industry is still in its infancy in Australia, and in my view is terribly unsophisticated when it comes to risk management practice. Directors of strata companies can make a small fortune in this industry, but the business model is based on loading up young and often inexperienced managers with huge portfolios of buildings, and leaving them to sink or swim.

To compound matters, owners and committee members (particularly new ones) are not clear on the roles and boundaries between what an Owners Corporation Manager can and cannot do for an Owners Corporation. This leads to unrealistic expectations that cannot be met, and an erosion of confidence in the Manager.

Typically, managers work very long hours, from the time they arrive in the morning (usually greeted by dozens of emails and phone calls) until late at night after they drive home from meetings. There is often not a lot of time left over for family and loved ones.

By its very nature, having a work / life balance while working as an Owners Corporation manager will be difficult to achieve, and the Manager knows and accepts that comes with the territory, but overall the industry does need to improve its act.

Unfortunately, the macro answer is for fees to be raised across the board – strata companies need to devote more resources (through the smarter deployment of staff and through investments in technology) to improve efficiency and output.

Owners Corporation Managers are tasked with administering hundreds of millions of dollars of property on behalf of owners, and mistakes will continue to be made unless and until strata companies modify their business model.

The strata law titling system has existed in Victoria for over 50 years, and each year that passes, the system gets more and more sophisticated as clever lawyers obtain judgments from Courts regarding the interpretation of statutory and common law concepts, and from amendments to the existing laws made by Parliament.

Since 1968, the Courts of Australia have been prepared to recognise that a developer, acting as a promoter of the building, will owe the Owners Corporation a fiduciary duty to act in an Owners Corporation’s best interests, and in relation to the ways in which it sets up an Owners Corporation to be managed in the future.

Over time, the scale, extent and operation of this fiduciary duty has expanded and contracted as various Parliaments around Australia have sought to legislate in this area, and various Courts around Australia have issued rulings in cases regarding this duty.

In the Owners Corporation Act in Victoria, there is also a legislative provision which requires a developer to act honestly and in good faith and with due care and diligence in the interests of the Owners Corporation in exercising any rights under the legislation.

The common law duty extends this principle, requiring a developer not to obtain any unauthorised benefit from the relationship and not to find itself in a position of conflict (where it might be tempted to ‘self-deal’).

The operation of this duty can take many forms; for instance, it can arise in such diverse areas as ‘embedded networks’ where a developer might enter into an agreement on behalf of the Owners Corporation with a gas or electricity supplier for the bulk buy of utility services. Typically, the developer would take an annual fee as a commission for the bulk purchase of the utility. It could be said that the developer has no right to earn a commission from the energy or gas that the Owners Corporation consumes, and that any commission should be payable to the Owners Corporation itself, not the developer.

In other circumstances, a developer might enter into a service contract on behalf of the Owners Corporation with a related company (such as concierge or building management services, property management, cleaning or security). If these agreements are found to be uncompetitive with the market (either in duration of years or based on the annual fees) then these Agreements may be able to be impugned.

However, before Owners Corporations rush off to VCAT seeking declarations and injunctions, careful consideration and analysis is required of what was disclosed by the developer in the off the plan sales contracts.

This is because the fiduciary duty of a developer may be constrained or limited if there was sufficient disclosure to purchasers of what exactly the developer was going to do in the future.

In addition, if there has been ratification of any of the agreements by the Owners Corporation, then the developer might have a defence to say that the Owners Corporation has accepted the contractual arrangements and is now bound to the commercial terms.

For instance, if a Developer placed an Owners Corporation into a 25 year agreement with the developers company to provide a service, and if that agreement has been on foot for say, the last 5 to 10 years without complaint, then the conduct of the Owners Corporation has been such that it has accepted the services and may have ratified the agreement through its operation, and is now estopped from impugning the agreement.

As always, much depends on the exact facts and circumstances of each case, however it will be critically important for Owners Corporations that are less than 5 years old to take advice on these matters: because if you snooze, you’re likely to lose. 

Last week, the VCAT struck down Rules passed by an Owners Corporation that prohibited pets from being kept in residential lots or on the common property.

Despite the Owners Corporation passing a special resolution among all owners to introduce a ‘No Pets’ Rule in 2014, a tenant that moved into the complex in late 2015 brought her pet Cavoodle, and maintained that it would not be removed. The Owners Corporation issued several breach notices, but ultimately when it filed an application in VCAT to use the Rules to enforce the dog’s removal, the VCAT instead declared the Rules to be invalid, of no effect and unfairly discriminatory.

A victory for the Cavoodles of Melbourne then.

But not just for the Cavoodles – this is also a victory for the Spaniels, the Terriers, the Ridgebacks, not to mention the Moggies, the Siamese, the Persians, and we can’t leave out the Mice, the Bunny Rabbits and the Snakes either.

The decision likely means that all Rules that prohibit Pets throughout Victoria run the risk of being found invalid and of no effect. Consequently, all Owners Corporations that currently have a no-pet Rule or policy are at risk of having this struck down.

This stems from the Supreme Court decision in July from Riordan J that ruled against an Owners Corporation in regard to a rule regulating short-term letting in the building.

The judgment clarified the extent of an Owners Corporation’s Rule-making powers, which found that although Owners Corporations have wide-ranging powers and functions to make rules to control and manage the common property, however in respect of rules to manage private use of lots, these powers are in fact very limited.

As both the Supreme Court and the VCAT have now noted, even if a Rule is found to be validly made about a matter involving the common property, it can nevertheless be ruled as unfairly discriminatory and of no effect if there is no reasonable justification for the discrimination.

In this case, the Rule banning pets from the common property was found to be unfairly discriminatory based on the layout of the common property and the likely interface and meeting point for residents and dogs on the common property.

Accordingly, the decision confirms that the Victorian Parliament has not acted to confer powers on Owners Corporations that would substantially interfere with the rights and privileges usually attendant upon freehold owners. In fact, the Victorian Parliament has not conferred many powers in favour of Owners Corporations much beyond the administration of the common property, although even that power may not stand in certain circumstances.

The recent issues paper that was published as part of its review of the Owners Corporation Act 2006 by Consumer Affairs has not proposed to increase the rule-making powers of an Owners Corporation either.

Although, Consumer Affairs is investigating whether the Model Rules should be expanded to include a power to regulate pets on lots or on the common property.

Ultimately, any new legislation will not be enacted within the next 2 years however, meaning that for now, Owners Corporations may well find themselves in serious doggy doo-doo. 

Unfortunately, we are well into storm season in Australia, and the east coast is being battered with its usual fair share of heavy rains and high winds.

Dealing with the aftermath of a storm is difficult for everyone affected. It is particularly difficult for Owners Corporations because they must also deal with upset lot owners, dispossessed tenants, and damage caused to common property. But where exactly does an Owners Corporation’s obligations start and end?

The most important thing that an Owners Corporation should have in place is the right coverage under their insurance policy. It is a statutory requirement to be insured for the full replacement value of all common property assets (unless you are in a two-lot scheme). In addition, you should ensure that your insurance policy covers damage such as storm damage, to the greatest practicable extent, and covers the cost of emergency or crisis accommodation for displaced residents, to the greatest possible extent.

In the aftermath of a storm, an Owners Corporation needs to be proactive to ascertain the extent of any and all damage to the common property. Ideally, its manager or a consultant should come on-site as soon as possible to assess damage, and if a resident reports any damage, the Owners Corporation should act promptly to investigate and make repairs.

This assumes of course, that the damage is done to common property, not lot property. In Victoria, the boundaries within a lot that delineate the point between common property and lot property can vary widely. Much depends on the notations recorded on the header sheet of the registered plan of subdivision as there are no hard and fast principles of interpretation. Often the notations read like gibberish to the ordinary person and state matters such as “location of boundaries defined by buildings – interior face – all boundaries.” What this seemingly innocuous phrase means is that items such as tiles and waterproof membranes, and the underside of ceilings will belong to the lot owner, not the Owners Corporation.

This matters a great deal when there is storm damage to these types of items, as it might well mean that lot owners might be required to claim any damage from a storm to these items under their own home and contents policy. If their insurer does not provide this type of coverage, then the owner can be left high and dry.

In recognition of this situation, some Owners Corporations elect to ensure that their policy of insurance for damage covers all parts of the building (including lot property) but may have a Rule in place to require owners to pay for the excess under any claims made to the insurer. Committee members ought to discuss these types of situations each year when the policy is up for renewal.

The legislation states that Owners Corporation have a strict duty to repair and maintain the common property in good condition. Where an Owners Corporation fails to meet these obligations, they may be liable for any property damage caused as a result, as well as pure economic loss if that loss is reasonably foreseeable.

In other words, when a storm damages common property and that damage causes consequential damage or loss to a lot, the Owners Corporation may be responsible. If a Body Corporate does not act promptly, it places itself at risk of being sued. That is why being proactive and acting promptly is so important.

An owner installs an Air Conditioner unit on the common property roof. A tenant stores their bicycle and some boxes of rags and domestic cleaning equipment in their car parking space. A tenant installs a BBQ and some garden furniture on the common property courtyard to create an enclosed space. An owner decides to place some potted plants near the entrance to the complex.

For each of these situations detailed above, an Owners Corporation has to consider the issue from the point of view of managing and regulating the use of and access to the common property. The legislation requires the Owners Corporation to control the common property and to ensure that common property is not misused.

Some owners corporations might turn a blind eye to these situations, citing a desire to either avoid drama or conflict, or maybe even due to apathy or tacit and silent approval.

But consider for a moment the implications of that air conditioner unit failing due to lack of maintenance over a period of years, catching fire one warm evening and engulfing the common property roof in flames. Assuming everyone in the complex escaped unharmed, would an insurer void coverage under its policy of insurance on the grounds the air conditioner unit was an unapproved installation? The owner that installed the air conditioner unit might be required under the common law to compensate the Owners Corporation. But if the damage to the roof is extensive, and if the owner concerned is not particularly wealthy, then the liability to cop the cost of the repairs falls back to the members of the Owners Corporation.

Ditto the situation in the car parking space. If a car catches fire in the basement, would the presence of the rags and toxic cleaning equipment exacerbate and accelerate the spread of fire? How would liability be apportioned in this case?

What about the tenant who took over common property to create their own private outdoor space? Does the Owners Corporation have the power to remove the furniture if the tenant ignores requests to remove it? If they did, where would they store it? What if the furniture got damaged during the time it was in storage?

All of these situations have occurred in Australia, and each time, the particular  Owners Corporation has found they didn’t have the powers under their existing Rules to properly cater for the situation. The majority of Owners Corporations consider that the Rules put in place for their Scheme (either the Model Rules under the legislation, or the original Rules put in place by the developer) are the start and end point for compliance. However, the Model Rules and the ‘developer’ Rules are usually very basic, generic and are not tailored to the individual characteristics of the different types and layouts of buildings that we live in.

I recommend that every three years, the Committee should review the Rules, and consider whether new situations have arisen that necessitate the passing of new Additional Rules.

The current legislation empowers Owners Corporations to make the types of Rules it wants, subject to the legal doctrines of ultra vires, unreasonableness, inconsistency and of course, discrimination.

As always, a special resolution would be required to change or introduce new Rules. However the cost of not taking these steps would far outweigh the costs of convening a ballot or special general meeting. In my view, Owners Corporations should take a proactive view towards regulation of their communities. After all, and to quote one of the other columnists – we live here. 

Technology is advancing so quickly these days. That television set and that stereo that we bought just three years ago (which still works just fine by the way) is all too quickly consigned to the obsolete pile, as consumer electronic brands compete to bring out the next biggest thing. In fact, we don’t just need an iPhone to keep in touch, nowadays we need an iWatch for when we walk out the front door and forget our iPhones.

In order to keep us connected to the world around us, the networks and cabling and telecommunication towers that line our cities and streets are becoming more numerous, as our desire and demand grows for faster and faster download speeds to power our handsets.

The problem for telecommunications network and service providers is where to place all of this cabling and infrastructure without it becoming an obtrusive eyesore for the public, and there is only so much cabling that can be buried under the footpaths and streets of this city. The answer is to utilize the MDF rooms and the rooftops of many of our high-rise apartment buildings.

In addition, fitting out the common property corridors and hallways with receivers and access points can boost residents’ access to high-speed cable and wireless internet and if its one thing that every apartment resident loves, its lighting-quick internet speeds. In some buildings, this can become a selling-point to increase the weekly rental value of units.

The challenge for Committees is to let the right service provider in. There are dozens of telecommunication companies that offer services in this area, and the Owners Corporation could decide to enter into an access agreement that is mutually beneficial for both parties and at no cost to the Owners Corporation.

As always, there are things to look out for, such as:

• Will the service provider promote open access to competing service providers in the building, so that residents are free to choose their own provider?
• Is the service provider installing the latest technology into the building, or are they simply installing left-over stock of old technology that will become obsolete in 12 months time?
• Is the service provider requiring rooftop access to install equipment and if so, do you know what is being installed and for what purpose? Rooftop installations can be quite lucrative for network providers, as the bandwidth and frequency can then be utilized to add to the existing network and therefore generate income from third party service providers that need to connect and host from these networks. Owners Corporations should always look to maximize the opportunities to defray levy costs, and earning income from leasing rooftop space that is seldom used to network providers in a handy way to keep levies low. But roofspace should never be given away for nothing.

Some of the lower-end service providers are now aggressively seeking to expand their business share by serving buildings with Installation Notices under the Telecommunications Act and are then forcing their way into buildings around Melbourne. These Installation Notices should in most cases be objected to strongly by the Owners Corporation, and within 7 days, otherwise the Owners Corporation risks the prospect of accepting these service providers to enter the building.

However, any installations or additions to common property by these service providers shall require the Owners Corporation to first pass a special resolution, and especially if rooftop antennas are proposed to be installed.

In summary, these types of service upgrades and the adoption of this technology ought to be welcomed by Committees, but the devil is always in the fine print and care should be taken to ensure that the building is not getting fleeced. 

There are still a large number of multi-storey high-rise developments being marketed and sold ‘off the plan’ in the Melbourne Metropolitan area.

As compared with buying an existing property, there are many potential benefits such as good pricing offered by developers needing to satisfy finance requirements, a potential capital gain during the period between signing the contract and settlement, the flexibility and choice regarding layout and floor plan size, and more time to arrange your financial affairs before moving.

However, it is well-reported that a large number of these newer developments are being financed and project-managed by cashed-up Chinese and Malaysian property syndicates (with Australian developers acting as the fronts) and with less and less reliance on the major Australian banks.

As a result, the developers are benefitting from the less-restrictive requirements imposed by the lending conditions of the traditional financiers and this can, in and of itself lead to more risks for the eventual owners of these apartments.

Some of the most important things for intending buyers to consider are (1) the profile and track record of the builder and developer. For instance, do they have a history of doing good work in Australia and around the world? Do they stand behind their developments? Do they return to their developments to fix any defects? Are they financially solvent? These matters can be checked via online enquiries. If the developer runs into trouble during the intervening period between the sales contract being entered into and settlement, then there is the risk of the deposit being lost, or the project being cancelled or at least substantially delayed.

(2) Has the developer provided sufficient information to understand what is being purchased? For instance, are the architectural plans of the building and common areas no more than generic images? Have the internal furnishings been specified?

(3) Have the running costs of the building been properly specified? Some Owners Corporations have had nasty surprises after settlement when it has been discovered that the budget and levies had been overwhelmingly under-estimated.

(4) Will the building be completed in stages and which stage will the unit be completed within? There can be instances of disruption and loss of amenity for owners that settle early, as they have to move in while the upper levels of the towers are still being built, with workmen and construction noise continuing for several months after settlement.

(5) Will the building be independently managed by reputable Owners Corporation Management companies and Caretaking companies or does the sales contract provide the developer with the discretion to appoint whomever they like and ‘lock the Owners Corporation’ into contracts of varying lengths?

(6) Do the proposed Rules suit your needs in terms of your personal attitude towards subject matters such as pets, smoking, the ability to short-term let, and the ability to carry out your own renovations?

(7) Do you know whether the apartment will have an obstructed or unobstructed view when completed?

There are always risks implicit with any investment, but with a large choice of apartments currently on the market, potential purchasers can afford to shop around and be ‘picky’ about whom they choose to invest their money with. Reputable developers with a good track record will do well out of the Melbourne market, while those developers who do not have a good reputation or are new to the market may struggle to get their developments sold quickly, unless they market the building overseas and sell to overseas owners.