A body corporate (also known as an owners’ corporation) is a constitution of owners who hold title to properties that have been subdivided on the parent title and where common property is shared by all owners. The rules in each State and Territory in Australia differ on whether a body corporate is legally required depending on the division of the properties. For example, in Victoria, a title that has been subdivided into two lots and where there is no common property (e.g. no common driveway or garden) can exist without a body corporate being automatically established. Often, owners will not establish a body corporate to keep costs low and will attempt to resolve any indifferences as they arise (e.g. in relation to maintaining the fence and utilities) because there is no shared common property.
Although the rules for body corporates exist, some owners will avoid following the rules in an attempt to lower costs, minimise administration and avoid additional obligations. This occurs more often than you think even when there is common property. This approach is not advisable and can lead to penalties and significant liability for owners if the common property is not maintained appropriately and where the funds and administration of the body corporate is not managed effectively. A simple solution is to engage body corporate services from a professional service provider. While the owners can self-manage their body corporate, most owners are time poor and prefer to outsource the requirements to a third party while the owners retain primary responsibility.
In this blog, we discuss the reasons why having an operating body corporate is important. Usually when owners sell property that is bound by a body corporate, they will give the impression that there is no body corporate so that potential buyers do not factor in the cost implications. In Victoria, withholding this information will breach section 32F of the Sale of Land Act 1962 (Vic) because sellers are required to disclose matters affecting the land which includes information relating to an owners’ corporation. Buyers are advised to sight this information and check that they are comfortable in the way the body corporate has been managed in the past. Poor management, lack of records and lack of built up funds in administration and maintenance accounts should be a red flag and it is best to engage a legal advisor to assist with negotiations.
Here are 10 reasons why owners should maintain an operating body corporate in accordance with the applicable laws.
An operative body corporate provides accountability to those who are tasked with managing the body corporate and conducting the day-to-day affairs. The services of a body corporate can be outsourced to a body corporate services provider if the owners don’t have the time, expertise or resources to complete the activities to the required standard. A body corporate will appoint a committee and chair to take carriage of body corporate matters in conjunction with the body corporate manager and work with outsourced service providers such as building managers and other essential providers.
Without a body corporate, matters affecting common property will not be dealt with in a consistent manner. This can be frustrating for owners when matters are not addressed in a timely manner or addressed in an inappropriate or ineffective manner. A body corporate will have its rules and follow procedures that will assist in processing issues in a regulated manner that has oversight from the body corporate committee. This approach ensures that funds are being allocated correctly and that matters are being addressed completely.
An active body corporate provides a positive perception to buyers when you are selling your property. Otherwise, buyers will wonder who is responsible for managing the common property. Most jurisdictions in Australia require owners’ corporation information to be shared with buyers when a property is being sold. Buyer will review the financials, meeting minutes and general upkeep of common property. If managed well, this will help to increase the overall value of your property.
Each State and Territory in Australia has rules governing the operation of body corporates. A failure to comply can result in penalties and unnecessary liability. For example, in Victoria the owners’ corporation must take out public liability insurance to cover common property. Following the applicable legislative and regulatory rules will assist the body corporate to remain in compliance with its obligations and reporting requirements.
Many owners avoid operating a body corporate because it can lead to additional costs. Owners might not want to maintain common gardens or driveways, or discuss the responsibility to maintain lifts or stairs, until something bad happens. This is not a wise approach. The body corporate should establish a maintenance plan that is implemented throughout the year, and reviewed on an annual basis. This will ensure that all aspects of common property are kept in good shape through the year.
A body corporate promotes transparency. Especially when there are many owners owning subdivided lots on a parent title, it is important that each owner knows how the body corporate operates. Without transparency, arguments can arise over the management of the common property. Each committee meeting should have documented minutes, and the Annual General Meeting should occur in accordance with applicable laws together with necessary notice requirements so that all owners can attend and have a say.
An established and operating body corporate enables growth. Complex properties such as apartment buildings, groups of town houses and a block of flats will benefit from a body corporate. The common property can be enhanced over time to include new features which will help with the growth of the area or building. Attract new owners or investors by ensuring amenities are up-to-date.
An active body corporate provides formality to the management of common property. Instead of having discussions using social media or engaging in ad hoc meetings that do not have planned agendas, a regulated body corporate will encourage participating owners to come together at regular times and cover topics that are relevant to the ongoing management of the body corporate. To protect the liability of body corporate participants, all meetings should have minutes and all interactions with third parties should be in writing.
With an active body corporate, the owners can tailor the approach to suit their requirements. Depending on the size of the body corporate, the owners can choose what they need to do without creating unnecessary complexities. Most outsourced body corporate service providers will adjust their services to suit the requirements of the owners. This can be advantageous from a cost perspective and also help owners to receive the support that they need without any unused benefits. For example, a group of 5 townhouses may not require a building manager because the owners collectively can maintain the area on their own.
With an established body corporate, you can receive support from owners and outsourced service providers. There is no requirement that owners need to complete all activities on their own. If a formalised body corporate exists, owners will be willing to support because there are regulated processes that are governed by approved rules and procedures. This will encourage owners to lend a hand and make suggestions, and also make it more acceptable for the body corporate to engage service providers after tenders have been issued and responses received.
At Our Body Corp, we are here to help the owners of a body corporate. We strive to deliver leading services with innovative solutions. Our custom strata management cloud-based solution has been created and developed by experienced professionals who understand the strata management industry. We offer three packages which can be tailored to suit your needs and budget. All packages provide access to our technological solution that puts you in control of your strata management requirements at your fingertips with access to support when you need it.