In our experience, the owners corporation is where a good-looking apartment can hide an expensive problem — a near-empty maintenance fund, a cladding bill on the horizon, or an inactive scheme that quietly makes insurance your job. The certificate and the minutes tell you which one you're buying into.
If you are buying a unit, townhouse or an apartment, you would note that these type of properties will generally come with an owners corporation, which is established to manage the common areas within the complex. An owners corporation would apply to everything between a small three-lot subdivision in the suburbs to the tallest high-rise in the middle of a metropolitan area. The primary responsibility of the owners corporation is to set rules that govern behaviour on the premises, raise levies that are used for general maintenance and management activities on site and hold meetings between all the owners and occupants to decide on the daily affairs of the complex.
What issues might arise if you are buying a property within an owner corporation?
You should check on the management activities of the manager to ensure that the complex is being well maintained and the affairs are well managed. It could become very costly to buy into a poorly managed complex because it may impact on your enjoyment of the property as well as the future value of the property. Depending on the nature of the concerns, you may not be able to sell the property to another buyer until the problems are rectified. Hence, it is important that you look into the owners corporation management prior to signing.
If you are buying a property within an owners corporation, in addition to the above issues, there might be issues arising from building defects and work required in relation to:
- external cladding, including identifying if the cladding is combustible, and whether it may need removal or replacement; and
- structural issues which might be noted from inspecting common property areas of the building revealing cracks, water leaks etc., which, for example, could result in significant costs for owners and have insurance disclosure and exclusion implications.
The owners corporation's money — and special levies
An owners corporation generally runs two kinds of fund, and your quarterly fees feed both: an administrative fund for day-to-day running costs (insurance, management and routine maintenance) and a maintenance (reserve) fund for larger, long-term works planned over the years. A near-empty maintenance fund is a warning sign — it often means a special levy is coming to pay for major works.
On top of the regular fees, the owners corporation can strike a special levy for an unbudgeted or urgent cost, such as combustible-cladding rectification. As a general rule, a special levy struck before the contract date is the seller's responsibility, while one struck after it typically falls to the buyer — so check the owners corporation certificate and recent meeting minutes for any levy on the horizon before you sign.
What does two-lot subdivision exemption mean?
If the Seller discloses that the owners corporation is an inactive owners corporation, it means that it has not obtained any insurance, raised any levies and had any annual general meetings over the last fifteen (15) months. This is not unusual for a two-lot subdivision. However, it means that the Buyer will need to resolve any disputes with their neighbours directly and purchase their own insurance over your residence and any applicable common properties.
If you are purchasing into an inactive owners corporation, which usually applies to small subdivisions in the suburb of a few lots, you will have to be more personally involved in the management of common affairs after settlement.
When there are more than two lots, does the exemption still apply?
If the Seller discloses that the owners corporation is an inactive owners corporation, it means that it has not obtained any insurance, raised any levies and had any annual general meetings over the last fifteen (15) months. However, a subdivision of more than two lots are required to have insurance for reinstatement and replacement and public liability. If there is no common property, insurance may not be required but the members must have a meeting to resolve unanimously that the lot owners must obtain their own lot insurance.
If the exception does not apply then the Seller must obtain insurance or the Buyer may avoid a sale at any time before the contract is completed. The Seller must then provide the Buyer with a full owners corporation certificate for their information and records.
General information only — not legal advice. Conveyancing law varies by state and changes over time; confirm your situation with a licensed conveyancer or solicitor.