Owners Corporation case law update- Developers and Managers beware!!
Owners Corporation 1 PS No. 834726V v Melbourne Owners Corporation Services Pty Ltd (Owners Corporations) [2024] VCAT 199.
What was the case about?
The Owners Corporation (which only had 4 lots) sought recovery of $2,400 it says was illegally removed from its bank account by the respondent manager after its contract of appointment expired.
The Manager said its appointment was illegally terminated and it was entitled to take the funds from the Owners Corporation’s account.
In a surprise move, the case was not really about the termination or whether the manager was entitled to take the funds but centred around the initial appointment of the manager.
Section 67B(1) of the Owners Corporations Act 2006 (Vic) (“the Act”) was enacted as part of the 2021 reforms. Section 67B(1) provides:
If the applicant for registration of the plan of subdivision appoints a third party manager prior to the first meeting of the Owners Corporation, the contract of appointment of the third party manager expires at that first meeting.
The Owners Corporation says the manager’s appointment expired at the first meeting of new lot owners on 10 November 2022. The manager says that the meeting on 10 November 2022 was the second annual general meeting of the Owners Corporation and so its contract of appointment did not expire.
The tribunal needed to work out whether the initial developer meeting was the first meeting or not for the purpose of section 67B.
The facts
The Tribunal laid out the facts as follows:
“On 11 July 2022, the developer and initial owner purported to hold the first meeting of the Owners Corporation under section 66 of the Owners Corporations Act 2006 (Vic). Section 66 requires the meeting to be conducted within 6 months of registration of the plan. The purpose of the meeting is for the developer to provide the documents pertaining to the Owners Corporation to the Owners Corporation. As noted on the Consumer Affairs Victoria website “The initial owner is usually the Owners Corporation’s sole member at this stage.” Typically, developers hold the first meeting as soon as possible after registration of the plan to pass the burden of insuring the building under section 9AAA of the Sale of Land Act 1962 (Vic) to the Owners Corporation. At the first meeting, a manager is usually appointed, insurance effected or transferred, and a budget approved so that fees can be levied immediately. The Owners Corporation fees are then adjusted at settlement which takes place within a few weeks after registration of the plan. At the meeting on 11 July 2022, the Manager respondent was appointed for a 3-year term, the maximum term permitted under s119(1D) of the Owners Corporations Act 2006 (Vic).”
The lot owners asked the manager to hold a general meeting which was held on 10 November 2022. At that meeting the manager was terminated.
The Owners Corporation alleged that the 10 November meeting was the first meeting and the manager’s appointment was automatically terminated by operation of section 67B.
The Manager opposed the termination on the basis that the first meeting was on 11 July and not 10 November. On that basis the 3 year contract was in breach and section 67B did not apply.
The Applicant argued that the developer was required to comply with the mandatory 14-day notice period under section 72 of the Act. That is lot owners must be given 14 days’ notice of an AGM.
The Applicant contended that the first annual general meeting could not be held within the first 14 days of registration of the plan and the meeting on 11 July 2022 is void.
The manager argued that just because there is a technical breach does not invalidate the meeting.
What did the Tribunal find?
The Tribunal found, based on previous decisions that the “Act does not provide a consequence for a breach of the provisions of Part 4 (apart from sections 87 and 89), because the Act recognises that a breach may be substantial or trifling. Each breach needs to be examined in its own context to determine what remedy, if any, is fair.”
As the developer did not provide itself with 14 days’ notice the Tribunal declared the 11 July meeting invalid. The Tribunal refused to exercise their discretion to validate the meeting notwithstanding the breach because:
“(a) there is no good reason why the developer has not complied with the mandatory 14-day notice period,
(b) the developer had 6 months to hold the meeting,
(c) there was no imperative to hold the meeting within 14 days of registration, the insurance had been arranged and was adjusted separately to the Owners Corporation fees,
(d) there is no detriment to the Owners Corporation and lot owners in declaring the meeting void,
(e) MOCS who opposes an order invalidating the meeting does not come to the Tribunal as an innocent bystander,
i. as an experienced Owners Corporation manager, it would or should have known the mandatory 14-day time period for the holding of the annual general meeting had not been met,
ii. rather than comply with the spirit of the amended legislation and allow the lot owners a choice in its Owners Corporation manager, it has relied on the wording of the Act to say that its contract of appointment has not expired,
iii. MOCS negotiated a 3-year contract with the developer in its own commercial interest,
iv. MOCS has otherwise not complied with the Act as will become evident later in these reasons.”
Having found the 11 July meeting invalid, the managers appointment automatically terminated at the first meeting on 10 November in accordance with section 67B.
The Tribunal made other findings in respect to the manager and their conduct.
Why is this decision important?
In almost every case in Victoria a developer will hold the initial meeting within 14 days of the registration of the plan of subdivision. The reason is that the standard condition in an off the plan contract is that settlement is usually 14 days after registration of the plan. Invariably, developers would not have given themselves notice of the meeting.
If the Tribunal follows this decision, then it is likely that all initial developer meetings will be held invalid. It will be up to the Tribunal in each case to work out if they should exercise their discretion to effectively “validate” the meeting instead of making it void.
The problem with this is that the initial meeting can include terms such as:
- Appointment of managers;
- Registration of Owners Corporation rules; and
- Entering into of leases, licences and other long-term contracts.
What should I do if I am a developer?
Make sure you have given yourself 14 days’ notice of the initial meeting and you keep a record of that. To avoid any argument, make sure you give notice and hold the meeting both after the plan is registered. This may mean having settlements 15 days instead of 14 days after.
If you have contracts entered into at the initial meeting, look to get them ratified again now if they have not been renewed (if that is even possible).
What should I do if I am a manager?
Check when you were appointed and if there was a valid notice given. Get yourself reappointed under a new contract asap.
What should I do if I am an Owners Corporation?
Always check how contractors and managers are appointed to see if there is a loop hole that can be relied upon.
The Tribunal is never keen to reward a party who has not acted in accordance with the Act or that they deem has been unfair in their dealings.
Is this disaster for every non-compliant initial meeting?
In short, it can be. However, the Tribunal is not bound to follow its own decisions but generally it does. There is a wide discretion for the Tribunal and plenty of scope to argue one way or another. It is best to limit the scope of argument and ratify critical arrangements where possible and ensure that appropriate notice is given for every meeting.
Need advice or assistance in a VCAT case?
Contact Phillip Leaman who heads the Owners Corporations team at Tisher Liner FC Law. We have extensive experience in assisting Owners Corporations, managers and developers in general governance matters and prosecuting and defending VCAT applications. See our website for information and useful guides for Owners Corporations and their committees and managers.