Developers' obligations to owners corporations

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While the initial owner (this may be the developer) is in control of the majority of the owners corporation (formerly body corporate), for 10 years, from the registration of the plan of subdivision, the initial owner must: 

  • act honestly, in good faith and with due care and diligence in the interests of the owners corporation 
  • take all reasonable steps to enforce any domestic building contract that affects the owners corporation.

If the initial owner fails to do so: 

  • the owners corporation can make a special resolution to authorise legal proceedings, for example, under the domestic building contract implied warranties 
  • independently of the owners corporation, individual lot owners can apply to the Victorian Civil and Administrative Tribunal (VCAT) for an order to make the developer meet the legal obligations.

New disclosure requirements at the first meeting of the owners corporation

A developer must provide the following documents at the first meeting of the owners corporation:

  • the building maintenance manual
  • an asset register
  • copies of any warranties or, if copies are not able to be provided, details of any warranties
  • copies of any specifications, reports, certificates, permits, notices or orders in relation to the plan of subdivision.

A developer must also disclose the following information at the first meeting of the owners corporation:

  • any relationship the developer has with the owners corporation manager
  • any immediate or future financial transactions that will, or will foreseeably, arise out of the relationship between the developer and the owners corporation manager
  • any specific benefits which the developer will receive as a result of their relationship with the owners corporation manager

The owners corporation must keep minutes of the first meeting for posterity, containing at least the following information:

  • the date, time and place of the meeting
  • the names of lot owners present
  • the names of lot owners who have provided proxies
  • the names of proxies present
  • the voting on any resolutions
  • the text of all resolutions of the owners corporation made at the general meeting; and
  • any disclosure made by the developer in relation to their relationship with the owners corporation manager.

What developers cannot do in relation to owners corporations

Developers cannot:

  • appoint themselves as owners corporation manager (unless the owners corporation in question relates to retirement village land)
  • appoint an associate, such as a spouse or employee, as owners corporation manager
  • vote on any resolution of the owners corporation that relates to a defect in or on a building on the plan of subdivision
  • propose an annual budget of the owners corporation which is unreasonable or unsustainable
  • designate as a private lot what would normally be common property or services
  • receive any payment from the owners corporation manager in relation to the owners corporation manager's contract of appointment.

Restrictions on the length of contracts entered into by the developer

If the developer:

  • appoints an owners corporation manager who is neither the developer nor a lot owner prior to the first meeting of the owners corporation, the contract of appointment of the manager expires at that first meeting
  • enters into any other contract (other than a contract of appointment for an owners corporation manager) that relates to the owners corporation and benefits the developer, that contract term must not exceed three years in duration. However, this restriction will not apply to hotel and resort management contracts.

Other developer obligations

Plan of subdivision

When preparing a plan of subdivision, a developer is now required to engage a licensed surveyor to set out the initial allocation of lot liability and lot entitlement in the plan (unless the owners corporation is a two-lot subdivision, or a services only owners corporation).

The plan of subdivision must specify details of lot entitlement and lot liability. It must also be accompanied by a statement detailing how lot entitlement and lot liability has been allocated.

Lot liability

Lot liability in a plan must be allocated equally between the lots except where:

  • there is a substantial difference in the size of the lots. Lot liability must be determined by the size of the lot and the proportion that size bears to the total size area of the lots
  • different lots have a bearing on the consumption or use of common utilities or the cost of maintaining the common property. Lot liability must be determined by the size of the lot and level of consumption or use by that lot of the common utilities and the common property.
  • the number of occupiers in each lot has a greater bearing on the consumption or use of the common utilities or the cost of maintaining the common property than the size of the lot. Lot liability must be determined by the number of bedrooms in the lot.

Lot entitlement

Lot entitlement in the plan must be allocated on the basis of the market value of the lot and the proportion that value bears to the total market value of the lots.

The owners corporation can resolve to alter the lot entitlement or lot liability through a unanimous resolution of the members. If this resolution is achieved, the owners corporation must apply to the Registrar of Titles to alter the lot entitlement or lot liability, within 60 days.

Other obligations

A developer is obliged to meet the requirements of other laws, as well as the Owners Corporation Act 2006

This means owners corporations can rely on legal protections from other legislation; for example: 

  • The Domestic Building Contracts Act 1995 implies warranties into all domestic building work contracts. A builder cannot avoid these warranties, which apply to the building work for 10 years. 
  • Some contracts include a ‘defect liability period’, which seeks to limit claims to between three and 12 months. Despite this, an owners corporation’s can still rely on the implied warranties of the Domestic Building Contracts Act 1995 or the Australian Consumer Law and Fair Trading Act 2012.

For more information about implied warranties, view Building warranties, insurance and insolvency.