High Rise Defects and High Confusion over Standing: Who Owns the Common Property?
By Justin Cotton, Partner, Construction and Practitioner Advocacy, Lovegrove Smith & Cotton, Construction and Commercial Lawyers
With the increase in high rise and high end apartment living in the inner suburbs, hence the upswing in domestic building disputes involving apartment living. Factor in the end to the drought in Victoria, and heavier rain falls have given rise to balcony waterproofing disputes, amongst other matters.
Closer living in mini communities can make it more difficult to establish just who is responsible for what. Where the line can become even murkier is when it is unclear who is responsible for building defects on the Common Property (as opposed to the private apartments or lots).
Sometimes it may even be “as clear as mud” on whether a defect is emanating from Common Property versus a private lot, and this has significant ramifications when it comes to liability and who is entitled to sue for defective works.
So who owns the Common Property in a residential or domestic Owners Corporation development? And who therefore has the capacity or “standing” to sue for defective building work or similar actions arising out of Common Property?
In such matters it may be necessary to look beyond the plan of subdivision and also consider the provisions of both the Subdivision Act 1988 and also the Owners Corporation Act 2006 (“the OC Act”). A reading of the pertinent parts of both Acts may supply the answers.
By virtue of section 4 of the OC Act the Owners Corporation (formerly known as “the Body Corporate”) has a duty to manage and administer the Common Property and to repair and maintain (i) the Common Property and (ii) the chattels, fixtures, fittings and services related to the Common Property or its enjoyment.
Section 9 of that Act also states that an Owners Corporation may appoint or employ persons to assist the Owners Corporation to carry out its functions, the most obvious example being the Owners Corporation Manager.
Also relevant is section 18 of the OC Act that specifies that an Owners Corporation must not bring legal proceedings unless it is authorised by “special resolution” to do so. Though this does not apply if the legal action is only to take action at VCAT to recover unpaid fees or to enforce its Rules.
By way of section 96, a “special resolution” is defined as a resolution passed by the Owners Corporation on the basis of 75% of the total lot entitlements if a ballot or poll is taken, or in any other case 75% of the total votes for all lots affected by the Owners Corporation.
Further, section 30 of the Subdivision Act 1988 relevantly provides that when a plan containing Common Property is registered then: “(a) any common property that is affected by an unlimited owners corporation vests in the owners for the time being of the lots affected by the unlimited owners corporation as tenants in common in shares proportional to their lot entitlement.”
In a key VCAT decision of Deputy President C Aird (decided 30 July 2009) concerning claimed Common Property defects in a high rise apartment building, it was explored whether or not the Owners Corporation itself was competent to institute proceedings against the Developer concerning the Common Property.
In this case, 2 of the private lot owners complained that they had not retained the Owners Corporation lawyers to act for them, had not consented to being named as an applicant in the proceedings, and did not recall being notified of any special resolution authorising the Applicant’s lawyers to bring the proceedings in the name of the Owners Corporation.
Relevant to the question of standing and ownership was the decision of Mandie J in Body Corporate No 1/PS40911511E St James Apartments v Renaissance Assets Pty Ltd  VSC 438 who stated:
“In my opinion, upon a proper construction of the provisions of the Subdivision Act and the Transfer of Land Act, a body corporate is the registered proprietor of a fee simple in the common property and it is the equitable or beneficial ownership but not the legal ownership of the common property which is vested in the lot owners by s28(d) of the Subdivision Act.”
He went on to say in that case (“St James”) that section 28(e) of the Subdivision Act requires the Registrar to create folios of the Register for Common Property in the name of “the body corporate as nominee” for the lot owners. The term ‘body corporate’ has now been replaced by the term “Owners Corporation” since the advent of the OC Act, as alluded to above, but it is the same legal entity that is referred to.
Deputy President Aird followed the reasoning in the St James decision and decided that the Owners Corporation had standing to institute the proceedings at VCAT in its own name. In doing so it was not merely acting as agent for the private lot owners and in fact the private lot owners did not need to be a part of the proceedings as applicants.
A special resolution was required to be passed by the Owners Corporation in order for legal proceedings to be authorised, and that had apparently been legitimately obtained, but the passing of that resolution did not authorise the legal representatives to act on behalf of the private lot owners. It was suitable for the Owners Corporation to institute the building defect proceedings in its own right as the registered proprietor of the Common Property.
Therefore, it was decided that the claims by the individual lot owners in regard to the Common Property ought to be struck out and they were removed as parties to the application. They would have the ability at a later time to bring fresh applications should any defects arise in their private lots.
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© Lovegrove Smith & Cotton 2014