Developers know your obligations

But what does a developer need to provide to an OC?

Section 67 of the Owners Corporations Act 2006 provides a comprehensive list of the documents that a developer must give the OC at the first meeting of the Owners Corporation. This includes the following:

(a) the Owners Corporation register;

(b) any accounts or records made on behalf of the Owners Corporation;

(c) books to enable the Owners Corporation to keep the necessary minutes, accounts and other records;

(d) a maintenance plan;

(da) a building manual approved by a relevant building surveyor under section 41B(1) of the Building Act 1993;

(e) a copy of the plan of subdivision and all related building plans, planning documents and other similar documents;

(f) a copy of this Act and the regulations and the Subdivision Act 1988 and the regulations under that Act;

(g) any contracts, leases and licences binding on or benefiting the Owners Corporation;

(h) any insurance policies in force in relation to the property, including any insurance policy taken out under section 9AAA of the Sale of Land Act 1962 ;

(i) the names of the companies, tradespeople or suppliers who provided a warranty or other guarantee on any matter for which the Owners Corporation is responsible and copies of those warranties and guarantees;

(j) the building maintenance manual;

(k) an asset register;

(l) copies of any warranties or, if copies are not able to be provided, details of any warranties;

(m) copies of any specifications, reports, certificates, permits, notices or orders in relation to the plan of subdivision.
 

(2) For the purposes of section 67(1)(l), a warranty must be assigned to the Owners Corporation if—

(a) the warranty holder is the sole beneficiary of the terms of the warranty; and

(b) the warranty is capable of being assigned to the Owners Corporation.
 

What disclosure obligations does the developer have?

Section 67A of the Owners Corporations Act provides that at the first meeting of the Owners Corporation the developer must disclose:

(a) any relationship with the manager of the Owners Corporation; and

(b) any immediate or future financial transactions that will, or will foreseeably, arise out of the relationship with the manager of the Owners Corporation and any specific benefits which flow to the developer as a result of that relationship.
 

What other obligations does the developer have?

Section 68 provides restrictions on a developer in voting while they own lots that have the majority of the lot entitlements of the lots until the end of the period of 10 years following the registration of the plan of subdivision. Once a developer no longer controls a simple majority of voting rights the obligations end and the developer may vote in their own self interest.
 

So what are the restrictions?

The developer must act honestly and in good faith and with due care and diligence in the interests of the Owners Corporation in exercising any rights under this Act.

In addition, the developer must take all reasonable steps to enforce any domestic building contract to the extent that it relates to the common property affected by the Owners Corporation; and of which the developer is aware or ought reasonably to be aware.
 

What about developers who are managers?

A developer or an associate must not be appointed as the manager of the Owners Corporation or vote on any resolution of the OC that relates to a defect in or on a building on the plan of subdivision. There is no time period for these restrictions. The Act has a narrow definition of associate and arguably does not include a related party such as separate legal entity. This seems a great oversight and really makes the restriction ineffectual.

Since 2021, developers must not:

(a) propose an annual budget of the Owners Corporation that is unreasonable or unsustainable; or

(b) designate as a private lot what normally would be common property or services; or

(c) receive any payment from the manager of the Owners Corporation in relation to the manager’s contract of appointment.

The biggest concern above is usually b, making something a private lot what normally would be common property or services.

Examples might include a caretakers office, embedded networks, visitor car parks, storage areas needed for Owners Corporation storage or common property services.

Developers need to avoid signing up to leases with developers where the terms are not commercial or in circumstances where the area should have been common property in the first place.

What about contracts entered into at the first meeting?

If a developer enters into any other contract (other than a contract of appointment for a manager) that relates to the Owners Corporation and benefits the applicant for registration, any term of that contract must not exceed 3 years in duration. See section 67B.

Tips for developers?

Careful of what you sign on behalf of the OC at the first meeting. As owner of all lots the paramount duty is to act honestly and in good faith and with due care and diligence in the interests of the Owners Corporation. This means that signing a lease to itself for $1 will likely be a breach of those obligations. Likewise, third party agreements that are for long periods, such as 25 year caretaking agreements, never seem to be in the best interests of an Owners Corporation and have a high chance of being deemed void by the VCAT.

Need assistance?

For expert assistance and advice for developers, committees and Owners Corporations please contact Phillip Leaman, head of our Owners Corporations team at Tisher Liner FC Law.