The Victorian Government’s response to the statutory review of the Owners Corporations Act 2006 (Vic) represents the most significant proposed overhaul of owners corporation governance since the legislation commenced almost two decades ago.
The headline reforms have attracted considerable attention. Licensing of Owners Corporation managers. Expanded investigative and enforcement powers for Consumer Affairs Victoria. Increased penalties. New disclosure obligations. Enhanced governance requirements. A new duty for initial owners (i.e., developers) to act in the best interests of subsequent lot owners.
Collectively, the reforms signal a clear shift towards greater regulation of the sector.
The underlying assumption appears straightforward: stronger regulation will lead to better governance.
The reality may be more complicated.
There is little doubt that some reform is necessary. The Expert Panel that undertook the review identified recurring concerns regarding transparency, conflicts of interest, record keeping, procurement practices and the conduct of some managers and committee members. Many practitioners working in the sector have encountered situations where stronger oversight would have been beneficial.
Yet governance failures are often symptoms rather than causes.
In practice, many disputes arise not because there are insufficient laws, but because owners have competing interests, limited engagement with governance processes, and differing expectations about how their communities should operate.
No amount of regulation can entirely eliminate those tensions.
The proposed licensing regime for owners corporation managers is perhaps the most significant structural reform. Supporters argue licensing will improve professional standards, increase accountability, provide greater consumer protection, and align the regulation of OC managers with other real estate professionals that require a licence.
Those objectives are difficult to oppose.
Although the design, scope and implementation of the licensing regime are yet to be determined, licensing inevitably creates additional compliance costs and barriers to entry. Smaller management businesses may face increased regulatory burdens, while larger operators are likely to be better positioned to absorb compliance costs and administrative requirements.
The result may be greater professionalisation of the industry, but potentially less competition.
The proposed expansion of Consumer Affairs Victoria’s powers raises similar questions.
The Government has indicated support for stronger enforcement mechanisms, including greater investigative powers and the ability to take direct regulatory action in certain circumstances. This may improve accountability and deter misconduct.
However, regulatory intervention is rarely cost-free.
The more expansive the regulator’s role becomes, the more important it will be to ensure consistency, procedural fairness and clear guidance regarding expectations. Otherwise, there is a risk that uncertainty increases rather than decreases.
The uncertainty could cause confusion and increase compliance costs. Again, the incidence of compliance burdens on smaller operators could adversely affect their ability to perform their functions and remain competitive.
Perhaps the most interesting aspect of the reforms is what they reveal about the evolution of strata living itself.
When the act commenced in 2007, strata communities were generally smaller and less complex. Today, many owners corporations manage assets worth tens or hundreds of millions of dollars. They oversee sophisticated building systems, substantial maintenance obligations, extensive contractual arrangements and increasingly complex compliance requirements.
In many respects, modern owners corporations resemble small corporations more than neighbourhood committees. The sophistication and complexity of the assets is only set to increase and, with it, the nature and scope of the duties of owners corporations.
The Government’s response appears to acknowledge this reality. Increased regulation is being proposed because the stakes are now significantly higher and growing.
The critical question is whether the reforms address the root causes of dysfunction.
Governance failures often emerge long before a regulator becomes involved. They arise when communication breaks down, factions become entrenched, meetings become adversarial and owners lose confidence in decision-making processes.
Licensing, enforcement powers and increased penalties may address some symptoms. Whether they improve day-to-day governance within communities remains to be seen.
The reforms undoubtedly represent a significant moment for the sector. The challenge now is ensuring that increased regulation translates into better outcomes rather than simply additional compliance obligations.
Good governance cannot be achieved through legislation alone.
It ultimately depends on informed owners, capable managers, effective committees and a willingness to engage constructively with differing views.
The legislation may change. The problems of collective action probably will not.
© Bugden Allen Group Legal Pty Ltd. This is general information only and not legal advice. You should not rely on this information without seeking legal advice tailored to your specific circumstances.
This post appears in Strata News #810.
Julia Moroz
Bugden Allen
E: julia@bagl.com.au
P: 03 8582 8100
Shuja Jamal
Bugden Allen
E: shuja@bagl.com.au
This article has been republished with permission from the author and first appeared on the Bugden Allen website.
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