Purchasing a property affected by an Owners Corporation
When purchasing a property affected by an owner's corporation, purchasers often assume that they are only liable for what lies within the internal walls of the property. This common assumption (read misconception) generally arises as a result of sections 59 and 61 Owners Corporation Act 2006 which require the relevant owner's corporation to insure the building.
Although in some cases, external walls do not fall within the boundary of the property; this is not always the case. Regulation 10 Subdivision (Registrar's Requirements) Regulations 2011 and/or the Plan of Subdivision, (attached to the section 32 Statement) would usually give an indication of what falls within the boundaries of the property you wish to purchase and, therefore, what could be your responsibility to maintain.
Many purchasers fail to take into account section 48 of the Act which requires lot owners to carry out repairs, maintenance or other works to their lots especially in cases where the state of disrepair of their lot:
- Adversely affects the outward appearance of the lot; and
- Adversely affects the use and enjoyment of common property or other lots.
The nature and extent of disrepair is not always apparent from the brief inspection you are likely to conduct prior to purchase. Additionally, if the state of disrepair is of a nature to be covered by section 48 of the Act, an owners corporation may serve a notice on the relevant lot owner requiring that the lot owner carry out repairs within 28 days of the service of the notice failing which, the owners corporation may elect to conduct the repairs and recover from the lot owner, as a debt, the costs of the work undertaken.
In the case of Owners Corporation PS508732B v Fisher  VCAT 1358 it was determined that a leak arising out of defect with the waterproof membrane was the responsibility of the lot owner as the waterproof membrane was part of the lot. In this case, the Owners Corporation gave notice to the lot owner and, subsequently, carried out the work at its expense. The owner was ordered to repay the cost of the repairs.
If the property you wish to purchase is in a good state of repair and, any notices and debts due to the Owners Corporation have been disclosed and payments made, such a matter may not necessarily concern you. However, it is worth noting the decision in Owners Corporation No 1 PS 506584A v Sokomoto Pty Ltd & Ors  VCAT 764. This case raised the issue of whether the duty of a lot owner to pay owners corporation fees extends to a period before the lot owner came into possession of the property. It was held that, by virtue of section 28(1) of the Act or, in the alternative, section 29(9) of the Subdivision Act 1988 (which are almost identical in wording) the owner was liable for the fees which accrued prior to his taking possession of the property. Section 28(1) of the Act states:
The owners for the time being and any purchaser in possession of, and any person entitled to receive the rents and profits from, a lot are liable to pay any outstanding fees, charge, contribution or amount owing to the owners corporation in respect of that lot,
If you are aware of the fees and/or any amounts owing to the owners corporation at the time of purchase and settlement, these would usually be adjusted at settlement. However, it should be noted that section 28(1) of the Act covers any amounts owing to the owner's corporation, which include debts. Therefore, if you are unaware of any fees or debts owing to the owner's corporation at the time of purchase and/or at settlement, you are likely to be held liable for payment of same.
Don't rely solely on the Owners Corporation Certificate
In some cases, there is difficulty in ascertaining the existence of disputes or whether notices have been served simply by looking at the Contract of Sale of Real Estate and section 32 Statement, which must attach an Owners Corporation Certificate. There are many reasons for this; one such reason could be that the matters have yet to be discussed in an Annual General Meeting or were simply not brought to your attention at the time of signing the Contract of Sale. This could result in you inheriting a debt and/or the expense of repair that could likely have been picked up by a building inspection report, which would detail any defects prior to purchase, and/or by requesting further information from the Vendor.
Tips and Advice
To try to avoid buyer's remorse, we recommend that you follow the steps below before you sign a contract to purchase:
- Carefully read the Owners Corporation Certificate. Request minutes of the previous three annual meetings.
- Obtain a building inspection report that covers internal walls as well as any balcony (and the waterproof membrane) and the exterior face, if possible. This will provide an indication of what requires repair and perhaps even provide an indication of the future expenses you are likely to incur if you proceed with the purchase.
- Talk to the owners corporation manager;
- Seek legal advice.