Is a body corporate compulsory in Victoria? This blog post provides a guide to understanding the role of a body corporate, the tier system in owners corporations, the benefits of having a professional owners corporation manager, and real-life examples of mismanagement. Whether you’re a potential buyer or an existing property owner, this valuable information will help you make informed decisions.
Are you considering buying a property in Victoria and wondering if a body corporate is compulsory? In this blog post, we will explore the concept of a body corporate and its implications in Victoria. Whether you’re a potential buyer or an existing property owner, understanding the role of a body corporate can help you make informed decisions and ensure the proper management of your property.
What is an Owners Corporation (formerly Body Corporate)?
An owners corporation is a legal entity responsible for owning and managing the common property within a strata titled plan of subdivision. The common property typically includes areas such as lobbies, stairwells, driveways, and shared amenities in a multi-unit development. The Owners Corporations Act 2006 governs the legal framework for owners corporations in Victoria.
The Tier System
The recent legislative amendments effective from December 1, 2021, have introduced a tier system for owners corporations in Victoria. The tier system classifies owners corporations based on the number of occupiable lots they encompass. Here is a breakdown of the different tiers:
- Tier 1: Owners corporations with more than 100 occupiable lots.
- Tier 2: Owners corporations with 51 to 100 occupiable lots.
- Tier 3: Owners corporations with 10 to 50 occupiable lots.
- Tier 4: Owners corporations with 3 to 9 occupiable lots.
- Tier 5: Owners corporations for 2-lot subdivisions or services-only owners corporations.
Is a Body Corporate Compulsory?
The question of whether a body corporate is compulsory depends on the tier classification of the owners corporation. According to section 119(1) of the Owners Corporations Act 2006, Tier 1 owners corporations must appoint an owners corporation manager. On the other hand, Tier 2 to 5 owners corporations have the option to appoint a manager, but it is not mandatory.
Benefits of a Body Corporate
While some property owners might perceive the involvement of a body corporate as an additional cost, there are numerous benefits to having a professional and competent owners corporation manager:
- Responsive communication: A proactive and efficient owners corporation manager will promptly respond to phone calls and emails, ensuring effective communication with property owners.
- Polite interaction: A professional owners corporation manager will maintain a polite and respectful approach, fostering positive relationships with property owners.
- Improved accessibility: Owners corporation managers can improve accessibility to important documents, such as financial statements and maintenance plans, ensuring transparency and ease of access.
- Accurate guidance: Owners corporation managers can provide accurate guidance on legal, financial, and administrative matters, helping property owners navigate complex issues.
- Efficient document processing: With their expertise, owners corporation managers can handle document processing efficiently, ensuring timely completion of necessary paperwork.
- Prompt repairs and maintenance: A diligent owners corporation manager will prioritize repairs and maintenance tasks, ensuring quick resolution of issues.
- Transparent accounting: Owners corporation managers can ensure transparent accounting practices, tracking and managing funds appropriately.
- Competitive obtaining of quotes: By leveraging their network and industry knowledge, owners corporation managers can obtain competitive quotes for services and maintenance tasks.
- Proper financial management: Professional owners corporation managers will ensure that owners corporation funds are not held in separate trust accounts, allowing for proper financial management.
The Compulsory vs. Voluntary Aspects
In Victoria, Tier 1 owners corporations are required to appoint an owners corporation manager. However, it is not compulsory for Tier 2 to 5 owners corporations to have an owners corporation manager. Without a professional manager, owners corporations can operate in two paradigms:
- Self-managed: In this scenario, an owner or resident volunteers their time to coordinate the affairs and operations of the owners corporation. While this can save costs, it can also present challenges in terms of expertise and compliance with legal requirements.
- Operating as if no owners corporation exists: In this paradigm, each owner operates independently without acknowledging the existence of an overarching owners corporation entity. This approach can lead to issues related to insurance, liability, and overall management of the common property.
Case Studies and Real-Life Examples
To highlight the importance of a professional owners corporation manager, let’s look at a real-life example. A few years ago, an industrial/commercial owners corporation contacted us regarding mismanagement. The owners corporation manager had failed to lodge income tax returns correctly, leaving the owners to deal with the financial repercussions.
This case illustrates the value of a competent owners corporation manager who can ensure proper accounting, compliance with tax obligations, and smooth operation of the owners corporation.
Setting Up a Body Corporate
Setting up a body corporate/owners corporation in Victoria occurs when the land surveyor registers the plan of subdivision with Land Victoria. During this process, it is advisable to seek legal and administrative guidance to ensure an efficient and cost-effective setup.
Whether you are buying or currently owning a property in Victoria, understanding the role of a body corporate and the corresponding legal requirements is essential. While the appointment of an owners corporation manager is compulsory for Tier 1 owners corporations, it is not mandatory for lower-tier owners corporations. However, the benefits of having a professional and competent owners corporation manager can significantly outweigh the costs.
If you are unsatisfied with your current owners corporation manager or need assistance with managing your owners corporation effectively, reach out to Strata Consultants Melbourne. Our team has been helping owners corporations review and improve their management practices since 2014.
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