Is Your Body Corporate Dying a Slow Death? Warning Signs and Legal Risks in Victoria

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By David Dawn, Licensed Conveyancer – Victorian Property Settlements

When you purchase an apartment or townhouse in Victoria, you’re not just buying a home — you’re also buying into a legal and financial structure known as an Owners Corporation (formerly called a body corporate). And if that structure isn’t functioning properly, the value of your property and your ability to sell or lease it can be seriously compromised.

Across Victoria, an increasing number of small and mid-size owners corporations are in disarray — with missing records, unpaid levies, unmaintained buildings, and power struggles between disengaged or hostile owners. When a body corporate is poorly run (or barely functioning at all), buyers, sellers, and current owners may be left exposed.

This article explores the signs of a failing owners corporation, the legal consequences, and what you can do if you're stuck in one.

What Is an Owners Corporation Supposed to Do?

An owners corporation (OC) is a legal entity created when land containing two or more lots is subdivided. Its role is to manage the common property and enforce the rights and responsibilities of lot owners under the Owners Corporations Act 2006 (Vic).

At a minimum, an OC must:

  • Keep proper records and minutes

  • Maintain insurance over common property

  • Prepare annual financial statements

  • Collect and manage levies

  • Convene annual general meetings (AGMs)

  • Comply with maintenance obligations under Section 46

If these duties aren’t being met, owners can face personal financial risk — especially in the event of injury, major repair, or legal claims against the OC.

Common Signs of a Dysfunctional Owners Corporation

Failing OCs usually don’t collapse overnight. They degrade slowly — often behind the scenes. Warning signs include:

  • No AGM has been held for several years

  • The OC manager (if any) has been replaced multiple times

  • There are unpaid or disputed levies among owners

  • Maintenance is deferred or not budgeted for

  • The insurance certificate of currency is missing or expired

  • Common areas (e.g. driveways, fences, stairwells) are in poor condition

  • Committee members are uncontactable or in open conflict

  • The OC register or plan of subdivision cannot be produced when requested

Buyers often discover these issues after signing a contract — especially in small schemes where no external manager is appointed.

Legal and Financial Consequences for Owners

When an OC is inactive or mismanaged, the risks are real and often underestimated. These may include:

  • Uninsured buildings: If common property lacks valid insurance and someone is injured, all owners may be personally liable

  • Special levies: Emergency repairs can lead to sudden, large levies — often without prior notice or transparency

  • Valuation impact: Properties in poorly managed OCs often sell for less or fall through in pre-settlement due diligence

  • Difficulty refinancing: Some lenders require evidence of OC insurance and solvency before issuing loans

  • Legal exposure: If the OC is sued for negligence or non-compliance, the costs are shared among owners

The law assumes the OC is active and compliant — and ignorance is no defence.

Disclosure Obligations in Sale Contracts

When selling a property affected by an owners corporation, vendors must provide a current OC certificate in the Section 32 statement. This includes:

  • The financial status of the OC

  • The name of the current manager

  • Insurance details

  • Any legal proceedings

  • Proposed special levies or major maintenance plans

If the OC is inactive, this certificate may not exist — or may contain outdated or misleading information. If the purchaser later discovers the OC is dysfunctional, they may attempt to:

  • Rescind the contract (in rare cases)

  • Delay settlement while seeking clarification

  • Demand compensation or negotiate a price reduction

  • Lodge a VCAT dispute after settlement

Sellers are therefore advised to ensure full and accurate OC disclosure well before listing.

What Buyers Should Do Before Signing

Before purchasing a property in an owners corporation, ask your conveyancer to:

  • Carefully review the OC certificate

  • Request minutes of the most recent AGM

  • Confirm that the insurance is current and adequate

  • Review the plan of subdivision for shared service obligations

  • Check if the OC has a functioning committee or manager

  • Identify any known disputes or outstanding levies

If documents are missing or out of date, that’s a red flag.

We often recommend buyers insert a special condition allowing them to withdraw if material OC defects are discovered — especially for off-the-plan apartments or older strata blocks.

Can a Broken OC Be Fixed?

Yes — but it takes work. Options include:

  • Appointing a new OC manager via resolution of a majority

  • Calling a meeting of owners under Section 76 of the Act

  • Applying to VCAT to enforce compliance or compel maintenance

  • Reforming the rules to clarify cost-sharing or behaviour expectations

  • Winding up the OC (in rare cases where the scheme is no longer functional)

In many cases, the first step is simply to reconnect the owners — and get agreement that the current state of disrepair or neglect is unacceptable.

Why It Matters at Settlement

A defective OC can delay settlement, undermine loan approval, and reduce the buyer's confidence — all of which can derail the transaction.

At Victorian Property Settlements, we routinely advise both vendors and purchasers on owners corporation risk, including:

  • Reviewing certificates and minutes

  • Flagging missing or misleading disclosure

  • Preparing special conditions for buyer protection

  • Liaising with OC managers to clarify key issues

Don’t leave this to the final week before settlement. If your OC is showing signs of failure, act early — or risk losing the sale.

📞 Call (03) 9783 0111
🌐 Visit: www.victorianpropertysettlements.com.au