‘Anarchy’: Technicality renders owners corporations effectively useless

Owners corporations have been unable to enforce their own rules after a single, technical ruling by a Victorian tribunal created “anarchy” for residential buildings across the state.

The Allan government – which has been pushing for high-density strata living – is under pressure to address the technicality that has left owners unable to take disputes about nuisance, building defects or strata managers behaving badly to the Victorian Civil and Administrative Tribunal.

A legal precedent was set from a ruling by VCAT deputy president Teresa Bisucci, resolving a power struggle between two owners corporations in Docklands.

The ruling requires owners corporations to obtain an almost-impossible 75 per cent vote from all lot owners for non-monetary actions – such as compelling a neighbour to stop a nuisance or demanding documents.

The July decision has far-reaching consequences that are now playing out in buildings across the state, according to Dr Janette Corcoran of the Owners Corporation Network.

“We are looking at a raft of unintended consequences from this particular determination,” she said.

Adam Promnitz, from the Strata Owners Alliance, called the situation a crisis.

“We think VCAT screwed up and has left every owner in Victoria worse off with this crazy decision,” he said. “It was a howler from the umpire.”

Phillip Leaman, a principal at Tisher Liner FC Law who specialises in owners corporations law, said many issues previously handled by the elected committees in a building (up to 12 people) now effectively require a special resolution from a majority of all lot owners.

To get a special resolution passed, a building needs at least 51 per cent in favour of an action as well as not more than 25 per cent against. This is required from all lot owners, not just those who attend a meeting, and requires a six-week wait before a vote.

Leaman said the biggest barrier to enforcement was apathy.

“People don’t vote at all,” he said.

One consequence, Leaman said, was that the ruling undermined the state government’s new rules on short-stay operators intended to give owner-occupiers more power to ban lots being used as Airbnb apartments.

“Now, if I’m a short-stay operator and I’m in an apartment with 200 lot owners, there’s a very good chance that a special resolution is never going to get up,” he said.

“Therefore, I can just flagrantly breach the rules and know that I’m never going to have to worry about fighting an action in VCAT because it will be impossible to get a special resolution over the line, particularly in big buildings, where it’s known that there are a lot of overseas investors.”

A serious consequence is that the delay in securing a special resolution means a terminated manager can hold up funds and records for over a month.

The delay risked the building becoming uninsured, Leaman said, because some owners corporations needed those funds to pay for insurance coverage.

Corcoran, who chairs an owners corporation in Docklands with over 500 lots, said special resolutions were often “dead in the water”.

“It’s really resource intensive, just even getting 50 per cent involved, and participating is a huge commitment,” she said.

“This is basically the law not reflecting the modern ownership patterns. And it’s not realistic to expect hundreds of owners to return ballots. Basically, the result is going to be paralysis.”

Promnitz described it as “anarchy for owners corporations”.

In Ringwood East, Shahrzad Rafezi and her fiance, Nicholas White, who act as the only engaged members of their five-unit owners corporation, feel the burden of apathy daily. After they purchased their first home, White became the chair of the OC by default “because no one else shows up to the meeting”.

“It’s almost like ... living in a jail cell because you can’t make any changes to common property,” he said.

Leaman said that to overturn the VCAT ruling, a Supreme Court case costing at least $15,000 would be required, a cost which is “totally out of reach for most owners corporations”.

Minister for Consumer Affairs Nick Staikos said strata laws were undergoing an independent review. Its findings and recommendations would be released by December.

“We made significant reforms in 2021 to better reflect the needs of Victorians living in apartments and other owners corporations properties,” Staikos said.

But Leaman said the ruling went against the intention of the 2021 reforms and that the problem needed to be addressed immediately by an act of parliament and “really can’t wait six to 12 months or two years” for a full review.

Promnitz said the situation eroded confidence in strata living – “a critical part of housing affordability in Victoria”.

“[It] rewards bad behaviour and punishes good neighbours. This is not how strata living was supposed to work.”

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