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The members of the Owners Corporation are discussing an issue in their building.

What is an Owners Corporation?

An important aspect of buying a unit or townhouse is understanding how the owners corporation (body corporate) operates, and what information about it must be included in the vendor statement/section 32.

An owners corporation (formerly known as a body corporate) is automatically created in Victoria upon the registration of a plan of subdivision for a strata title. Its existence is automatic, regardless of whether it is active or if a commercial management company has been appointed.

If there are only two units on the block, or there is no common property beyond shared water pipes and walls or roof lines, then the property owners are exempt from complying with most of the legal obligations set out in the Owners Corporation Act 2006 (Vic) and the accompanying regulations. These legal obligations relate to regular meetings, joint insurance policies and other shared costs such as gardening and electricity.

If there are at least three units on a block, with common property such as a shared driveway, they are legally required to share at least the public liability insurance affecting the property, unless the owners formally agree otherwise. An owners corporation with three or more units on the block must be insured on the date any of the units is sold, otherwise the purchaser of the property can terminate the contract (and get their deposit back) all the way up until settlement day.

There are minimum or standard rules that each owners corporation must adhere to under the law, and the owners corporation can make additional customised rules (which is common in large apartment buildings). These relate to things like making noise, behaviour on common property, moving in/out procedures, colours for blinds and external painting, and prior permission being required for structural changes that affect insurance coverage. This means that any proposed building work (including new decks, pergolas and removing load bearing walls) must be formally approved by all members of the owners corporation, and this approval also tends to be a Council planning permit condition.

There is no requirement to have a commercial company manage the owners corporation; many smaller subdivisions are self-managed by an owners' committee or a volunteer chairperson, which keeps costs down.

The section 32/vendor statement for a property affected by an owners corporation must contain certain information or it is deemed to be legally invalid - unless the owners corporation is inactive, which is legally defined to mean the owners corporation has not, in the previous fifteen months: 1. had an annual general meeting; 2. fixed any fees; and 3. held any insurance. So if there is a joint insurance policy, the owners corporation is active and the vendor must provide the other required documents in the section 32/vendor statement, including AGM minutes (if they exist).

Interested buyers should obtain a legal review before they sign any contract, which will check whether the owners corporation actually falls within the legal definition of inactive or not, and whether all the legally required documents have been included, including minutes from the most recent Annual General Meeting. Minutes (or meeting notes) can often be the most important and revealing document contained in an entire section 32/vendor statement, and recent minutes are often missing if the vendor is trying to hide bad news about the property.

Note: the above is general information and should not be considered as legal advice.

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