When Can a Body Corporate Bring Proceedings?
Body corporate are management groups made up of the property owners within a plan of subdivision. They are responsible for the management and maintenance of the common property within a plan which is for the benefit all property owners.
The commencement of legal proceedings by a body corporate is regulated by legislation. Body corporates are ordinarily required to bring proceedings with an ordinary resolution or a special resolution from their members.
The purpose of this paper is not to investigate the intention of the legislators with respect to the limitation of proceedings, instead focusing on the requirements that must be met by body corporates before proceedings can be brought under their names.
The Victorian Parliament recently introduced the Owners Corporations and other Acts Amendments Act 2021 (Vic) (“The Amendments Act”), due to come into force on or before 1 December 2021. The Amendments Act deals with various changes to different legislation. This paper will focus on the changes to the Victorian regulations that relate to the conditions that must be met by a body corporate prior to initiating proceedings.
We have analysed the relevant legislation in various Australian states in order to compare and contrast the preconditions for body corporates to bring actions, as well as conducting a review of the amendments which will soon be applied within Victoria. The focus of this paper is to investigate the relevant provisions in Victoria, New South Wales and Queensland, as well as The Amendments Act.
Body corporates in Victoria are regulated by the Owners Corporations Act 2006 (Vic) (“The Victorian Act”). The Victorian Act refers to body corporates as ‘owners corporations’, and states that their main purpose is to manage and administer common property.
Section 18 of The Victorian Act restricts the ability of owners corporations to bring legal proceedings. In effect, this section provides for two situations where body corporates can bring legal proceedings.
The first situation is when they have been authorised by a special resolution to do so. Depending on the body corporate’s constitution, these types of resolutions may require up to 75% of the total lot owners entitlements or votes for it to be passed.
The second situation arises where an action is brought which relates to the recovery of fees or the enforcement of the owners corporation rules under part 11 of The Victorian Act, generally referring to disputes involving the operation of the owners corporation, breaches of obligations imposed on lot owners or occupiers and the exercise of the functions of the owners corporation managers. These types of disputes must be initiated by an application to VCAT.
Where these applications are sought in order to obtain fees and levies, to enforce the rules of the owners corporation, or to make repairs to common property, no special resolution is necessary to allow the owners corporation to initiate proceedings.
Under section 153 of The Victorian Act, however, owners corporations must further ensure that, prior to any application to VCAT, all available internal dispute resolution processes have been applied and have been unable to resolve the issue.
These provisions greatly limit the ability of the owners corporation to initiate their proceedings without a special resolution. Claims are limited to being lodged with VCAT, and generally relate to actions brought against lot owners, occupiers, or managers of the owners corporation.
Owners Corporations and other Acts Amendment Act 2021 (Vic)
This Act has been assented to and will soon come into force. The provisions with respect to proceedings are due to lower the requirement for proceedings from a special resolution to an ordinary resolution.
The new proposed section 18 of The Victorian Act will once again include two situations where an owners corporation can bring proceedings.
The first is where they are authorised to do so by special resolution.
The second is where the amount sought is within the jurisdictional limit of the Magistrates’ Court, meaning a claim for $100,000 or less, and they are authorised by ordinary resolution to do so.
An ordinary resolution only requires a majority of votes from a meeting to be in favor of the action, rather than 75% of the total votes.
This will greatly reduce the cost and time involved in contacting and receiving votes from various lot owners, especially where there are a large number of lots with owners who are abroad or otherwise difficult to contact.
The amendment also allows for actions to be brought in the Magistrates’ Court, any Tribunal, or Courts of other states and territories which are equivalent to the Victorian Magistrates’ Court.
While the impact of these amendments is yet to be seen, we estimate that as a result of the reduced difficulty of bringing proceedings, there will be a noticeable increase in the number of actions brought by owners corporations.
New South Wales
Plans of subdivision within the New South Wales jurisdiction are regulated by the Strata Schemes Management Act 2015 (NSW) (“The NSW Act”).
Section 103 of The NSW Act states that owners corporations may not obtain legal advice or take any legal action for which payment is likely to be required unless authorised to do so by a resolution passed at a general meeting.
General meetings can be called at any time by the secretary or strata committee of the owners corporation. They can also be called where a qualified request has been made. This means a request made by an owner or group of owners whose total lot entitlement is equal or greater to 25% of the total lot.
The section further states that the owners corporation does not need to have approval by resolution where they are of the opinion that legal action is necessary for the protection of their interests and is unlikely to exceed the cost of $10,000.
Approval is also not required where an owners corporation is seeking legal advice before commencing legal proceedings or taking legal action to recover unpaid contributions, interest on unpaid contributions and other related expenses.
Queensland adopts a similar approach in their regulation of body corporates. The initiation of proceedings is outlined in section 312 of the Body Corporate and Community Management Act 1997 (QLD) (“The Queensland Act”).
The Queensland Act provides that in a two lot scheme, the owners of which make up the body corporate, proceedings may be authorised by a lot owner agreement. This involves an agreement by both lot owners to initiate proceedings through the body corporate.
An owner in a two-lot scheme may also bring a proceeding without a lot owner agreement if it falls under a ‘prescribed proceeding’ which are outlined within section 312.
Prescribed proceedings broadly relate to:
- A proceeding for the recovery of liquidated debt against a lot owner;
- A counterclaim, third-party proceeding or other proceeding in a matter to which the body corporate is already a party;
- A proceeding for an offence relating to a breach of the body corporate by-laws;
- A proceeding to enforce or appeal against an adjudicator’s order under chapter 6 of the Act.
Where a scheme involves more than two lots, a special resolution is required by a body corporate for any action other than a ‘prescribed proceeding’. In relation to debt, The Queensland Act explicitly allows for the collection of liquidated debt from a lot owner without any resolution, as it would be considered a ‘prescribed proceeding’.
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