“In my father’s house are many mansions”

- John 14:2

Recent construction approvals suggest that Melbourne’s extraordinary surge in high rise construction is about to spread to suburban areas, with parts of inner Melbourne set to become hubs for mixed commercial and residential projects over the coming years. Where suburban owners corporations managers previously dealt with perhaps a handful of mixed purpose properties with more than one owners corporation, they should no longer be surprised to find properties, including mixed use premises, master planned estates and leisure resorts, comprising several owners corporations.

So with an increase in properties requiring multiple owners corporations to manage access, usage and costs, what conceptual and practical difficulties arise and how can a manager maintain administrative efficiency and customer satisfaction?

Authority to create multiple owners corporations

The authority to create multiple owners corporations is derived from section 27 of the Subdivision Act 1988 (Vic) (“Subdivision Act”), pursuant to which a property may comprise of an unlimited owners corporation (“OC1”) that owns all common property, and one or more limited owners corporations (“OCx”) applying to certain lots only. Each lot owner is a member of the unlimited owners corporation (OC1) and, where applicable, one or more limited owners corporation(s). The overarching resulting benefit is that certain lots can enjoy exclusive use of OCx’s common property but also contribute to separate cost centres.

As an example, let us say that a high rise property in Melbourne CBD is divided into ground floor retail and several floors commercial use, with the remainder being residential units. The property has a gym, pool and car park, for use by residential lots only. Creating multiple owners corporations allows everyone to be a member of OC1, the unlimited owners corporation, but only the residential owners are members of OC3, which owns common property 3, gym, pool and car park. Thus, OC3 members have exclusive use of OC3 property and OC1 members are not required to foot the bill for facilities which they do not have the right to enjoy.

Functions and Powers of Multiple Owners Corporations

The functions and powers of a limited owners corporation are set out in the plan of subdivision’s accompanying document. It is important to note that section 27C of the Subdivision Act also allows for the delegation of OCx’s functions and obligations to OC1. Consequently, and prior to exercising functions of OCx, or OC1 in relation to OCx, the owners corporation manager should check which owners corporation has authority to exercise those functions.

Taking the example of owners corporations certificates, under section 151 of the Owners Corporations Act 2006 (Vic) (“OC Act”), each owners corporation must issue and execute by common seal owners corporation certificates. Thus, for each owners corporation of which a lot owner is a member, he or she should receive separate certificates. This means that OC1 cannot issue all certificates, only those it is empowered to issue. However, if this power has been validly delegated to OC1, then OC1 can issue certificates on behalf of any OCx. Prior to issuing a certificate, the manager of OC1 and/or OCx, should question which entity has the authority to issue owners corporations certificates.

The question of authority is particularly important in the sphere of making rules. Under section 138 of the OC Act, each owners corporation has the power to make rules. OCx must make rules for itself and can only act within the authority conferred upon it. This was highlighted in the case of Metro Real Estate Services Pty Ltd v Owners Corporation No. 1 PS5114124U [2013] VCA 2138, in which VCAT decided that a limited owners corporation committee did not have the requisite power to exclude serviced apartment lot owners, residents and their guests from the gym, swimming pool and sauna. The power of members to make rules for these facilities could thus not be delegated to the owners corporation’s committee. The issue for managers lies in ensuring that rules and decisions made by an owners corporation’s committee are made pursuant to valid authority.

Managing multiple owners corporations 

As each owners corporation is its own separate legal entity with an ABN, financial records, a committee and committee meetings, managing multiple owners corporations requires a careful balancing act between different key persons and decision makers, potentially different managers and competing and conflicting interests. Whether you are a manager of OC1 or of one or more limited owners corporations, it is crucial to ensure that decisions affecting common property of OC1 to OCx are made by the appropriate committee. Otherwise, a manager runs the risk of OC1 making unauthorised decisions affecting OCx’s common property.

Similarly, fees and expenses of each owners corporation should be appropriately allocated to the relevant owners corporation. When seeking tenders or establishing maintenance plans, a manager should ensure that the quotes are sufficiently itemised so as to distinguish between costs incurred by each owners corporations.

In conclusion, owners corporations and their managers should proceed with caution when dealing with multiple owners corporations and carefully consider the powers and obligations of each OC1 and any OCx prior to making decisions affecting common property. The need to identify the precise extent of each owners corporation’s authority is paramount to ensuring decisions are validly made.

If you are a manager of properties involving multiple owners corporations and have questions about the extent of your engagement and the authority of the committee to make decisions, Berrigan Doube Lawyers are experienced in providing legal advice to owners corporations and owners corporation managers.

The above article should not be taken as legal advice but if you have any comments in relation to this article or require assistance with any owners corporations questions, please do not hesitate to contact Jenny Wang or Lindsay Crofton of Berrigan Doube Lawyers on 03 9600 2577.