The civil lawyer: Owners corporations - part 1: what do they do?

I was recently involved in a dispute between an owners corporation, an owners corporation manager and a lot owner. The lot owner was claiming that the owners corporation manager had not acted in good faith when carrying out its duty as a manager, and that the owners corporation had breached its duty of care towards the lot owner. The dispute related to repairs to the water services for the lot owner, those water services being part of the shared services of the owners corporation. The lot owner claimed damages in relation to those breaches.

This is the first part of a short series on owners corporations. The series is intended to give the basics of owners corporations, discuss what their duties are and what the consequences are if the duties are breached.

The discussion below is a general discussion introducing owners corporations, what they do and how they delegate their functions.

The law concerning owners corporations (previously body corporates) is now mainly contained in the Owners Corporations Act 2006 (Vic) (the OC Act). The purpose of the OC Act is set out in s1 of the act, and is as follows:

The main purposes of this Act are-

(a) to provide for the management, powers and functions of owners corporations; and

(b) to provide for appropriate mechanisms for the resolution of disputes relating to owners corporations; and

(c) to amend the Subdivision Act 1988 in relation to the creation of owners corporations.

Generally speaking, an owners corporation is a separate legal entity which has as its members the individual lot owners. s28 of the Subdivision Act 1988 (Vic) states that an owners corporation has perpetual succession and a common seal and is capable of suing and being sued in its own name.

The function of an owners corporation is set out in s4 of the OC Act as follows:

(a) to manage and administer the common property;

(b) to repair and maintain-

(i) the common property;

(ii) the chattels, fixtures, fittings and services related to the common property or its enjoyment;

(iii) equipment and services for which an easement or right exists for the benefit of the land affected by the owners corporation or which are otherwise for the benefit of all or some of the land affected by the owners corporation;

(c) to take out, maintain and pay premiums on insurance required or permitted by any Act or by Part 3 and any other insurance the owners corporation considers appropriate;

(d) to keep an owners corporation register;

(e) to provide an owners corporation certificate in accordance with Division 3 of Part 9 when requested;

(f) to carry out any other functions conferred on the owners corporation by-

(i) this Act or the regulations under this Act; or

(ii) the Subdivision Act 1988 or the regulations under that Act;

(iii) any other law; or

(iv) the rules of the owners corporation.

Generally speaking, the purpose of an owners corporation is to manage shared services or areas, such as the common property. Because the lot owners are generally not interested in spending too much time concerning themselves with managing shared services or areas, most owners corporations seek to delegate management functions to a third party manager and/or to a committee.

s119 of the OC Act provides that an owners corporation may appoint a manager. The functions of the manager is set out at s120 and s121, as follows:

...the manager has the functions and powers that are conferred on the manager by-

(a) this Act and any regulations made under this Act;

(b) the rules of the owners corporation;

(c) the owners corporation by resolution;

(d) delegation by the owners corporation.

Both the owners corporation and the manager have statutory duties. These duties are set out at s5 (owners corporations) and s122 (managers). The contents of the duties are largely the same, and are as follows: