When you are buying an apartment in Melbourne, conveyancing involves much more than just checking the title to a single unit. Unlike a standalone house, an apartment purchase means you’re investing in an entire building and joining a collective legal entity. Understanding owner’s corporation risks is essential to ensure your dream home doesn’t become a ‘financial nightmare’.
What is an owners corporation?
An owners corporation (formerly known as a body corporate) is a legal entity that manages the common property of a multi-unit development. It is automatically created when a plan of subdivision containing common property is registered.
What it controls
An owner’s corporations responsibilities are primarily dictated by the Owners Corporation Act 2006. The general rule of thumb is that the owners corporation is responsible for anything on the common property plan which includes the management, repair and maintenance of the common property. This typically includes:
- Structural and external maintenance: the owners corporation is responsible for the envelope of the building and any shared structural elements swells
- Common areas and facilities: any space that is shared by more than one lot owner falls under the owners corporations jurisdiction
- Essential services and infrastructure which may include shared plumbing, common electricals and fire safety equipment
- Administrative and financial duties: the owners corporation must manage the legal and financial health of the common property. This includes taking out and renewing building and public liability insurance, levying fees for the administrative fund or maintenance fund, preparing annual budgets and maintaining the owners corporation register.
Buyer responsibilities
If you own an apartment, you automatically become a member of the owner’s corporation. This membership carries significant legal and financial responsibilities, including:
- Paying fees and levies to meet the building’s financial obligations. This include paying your quarterly or annual fees on time which cover the owners corporations insurance obligations, shared utilities and any special levies which are considered one off contributions for unexpected or major capital works.
- As an owner, you are legally bound by the Owners Corporation Act and the model rules (or specific rules registered by the owners corporation). The rules cover items such as behaviour (not being a nuisance and excessive noise), common property respect (not damaging shared assets or obstructing common driveways) and restrictions around building alterations (limitations around structural changes or alterations to the external appearance of the lot).
- Exercising due care through voting on building decisions at annual general meetings.
- Internal maintenance and repairs: the lot owner is responsible for keeping their specific unit or apartment in a state of good repair.
- While the owners corporation insures the building structure, individual lot owners are responsible for contents insurance and landlord insurance (if the property is being rented out).
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Key owners corporation documents buyers must review
When buying an apartment in Melbourne, conveyancing experts will review the owners corporation certificate to identify strata risks.
Owners’ corporation certificate
This is a vital document that an owner’s corporation must provide within 10 business days of a request. Section 151 of the Owners Corporation Act 2006 requires specific documents be included in the owners corporation certificate. These include:
- The owners corporation rules: these may include specific rules registered with Land Use Victoria or if the owners corporation does not have rules the model rules will apply.
- Minutes of the last annual general meeting: the minutes shows a health check on the building, showing what owners discussed at this meeting, whether fees were raised and if there are any known building defects or disputes
- Details of insurance cover for the building: these include the name of the insurer, policy number and type of cover.
- Any ongoing contracts and leases: information on any agreements that bind the owners corporation, such as building management contracts or leases of common property (e.g. a cafe leasing a foyer space).
- Any ongoing legal proceedings (at court of VCAT) or official building notices served on the owner’s corporation in the past 12 months.
Financial statements and budgets
A healthy building requires strong financials. Experts recommend reviewing at least two years of meeting minutes and financial statements. Red flags include:
- Poor maintenance funds that may lead to future levies.
- High debt or a history of frequent special levies.
- Evidence of paralysed decision- making where critical repairs and maintenance works are delayed due to committee infighting.
The financial statements (balance sheet and income/expenditure statement) show the actual history of the building’s spending. They show if the owners corporation has enough cash to pay its debts. These documents are non-negotiable for potential buyers because they reveal whether a building is a well-managed asset or a ticking financial time bomb.
The maintenance fund (sinking fund) is the most important figure. It shows how much money has been set aside for long-term capital works (like painting, lift replacement or roof repairs). A low balance in an older building is a major “red flag”. While the administrative fund is for recurring, short-term expenses that occur within a single financial year. These may include expenses such as common utilities, routine maintenance, insurance premiums and essential safety measures.
- Expert Tip
Check the “Income & Expenditure” statement in the annual general meeting (AGM) minutes. If you see money being “borrowed” from the Maintenance Fund to pay Administrative Fund bills (like insurance), it’s a sign of poor financial management.
A buyer isn’t just buying a kitchen and a bedroom; they are buying a share in the owners corporation. If the owner’s corporation has $100,000 in debt, the buyer becomes part-owner of that debt the moment they settle. Financial disclosure prevents “hidden” liabilities from being passed onto an unsuspecting purchaser.
Special levies and who pays them
One of the most significant legal issues when buying a unit in Melbourne involves special levies. These are one-off fees raised to cover major, unexpected expenses that the regular budget cannot afford.
Existing vs future levies
- Existing levies: These are levies already approved by the owner’s corporation. They must be disclosed in the owner’s corporation certificate.
- Future levies: These are ‘surprise’ costs for upcoming works, such as major upgrades, fire safety improvements, or legal fees. If a building has known defects but hasn’t yet raised the funds to fix them, the new owner may be hit with these costs shortly after settlement.
Adjustment at settlement
The owner’s corporation certificate identifies the date to which fees have been paid. During settlement, your conveyancer will obtain an updated owners corporation certificate ensure that any unpaid fees or approved levies are accounted for, so you are not paying for the previous owner’s debts. However, once you become the owner, you are liable for any new levies raised by the owners corporation.
Common apartment and owner’s corporation risks buyers miss
Building defects
Building defects are a massive threat in Victoria, with some estimates suggesting up to 60% of new apartments have critical flaws. These often include waterproofing failures in balconies or bathrooms and serious structural cracks. While statutory warranties exist, they are often useless if the builder has gone insolvent.
Cladding issues
Many Melbourne buildings constructed between 2000 and 2020 are affected by combustible cladding. Rectification costs can reach millions of dollars, leading to massive special levies for individual owners. Recent audits by Cladding Safety Victoria found that 80% of buildings with cladding issues also had hidden structural faults—most commonly water ingress and moisture damage behind the walls. Always ask if the building has been audited under the Victorian Cladding Rectification Program.
Buyers see a “cladding rectified” note and assume the building is cleared. In reality, the owners corporation may still be fighting a legal battle with the original builder over internal water damage that insurance won’t cover.
Disputes and litigation
A history of VCAT (Victorian Civil and Administrative Tribunal) cases is a major red flag. It indicates deep-seated problems, whether they are disputes over rule-breaking, maintenance, or developer litigation, all of which result in financial pain for owners.
Other risks
- The “car stacker” financial trap: Many modern Melbourne developments use automated car stackers to save space. These are mechanical assets with high failure rates and specialised maintenance requirements. ar stackers often have their own separate maintenance contracts and power requirements. If a stacker fails, the OC must fund a total replacement, which can cost hundreds of thousands of dollars, leading to a sudden spike in your levies.
- Short-stay (Airbnb) saturation: Melbourne’s CBD and inner-suburbs have high concentrations of short-stay apartments. High turnover of guests leads to increased wear and tear on common property (elevators, carpets, foyers), driving up your maintenance fees. A “hostile” owners corporation might be in the middle of passing new rules to ban or restrict short-stays, which could ruin your plans if you were buying the apartment as a high-yield investment.
How a conveyancer or property lawyer identifies apartment red flags
A specialist property lawyer or conveyancer acts as your defence against a bad investment. They identify red flags by:
- Analysing the section 32 statement: Spotting missing information, unregistered rules, or zoning issues (e.g., apartments on commercial land that require different loan types).
- Verifying property titles: checking that car parks and storage cages are on the registered title rather than just being licensed spaces that can be revoked.
- Spotting embedded networks: identifying if the building is locked into exclusive, expensive contracts for electricity or internet.
- Reviewing owners corporation minutes: looking for mentions of car stacker failures, noise complaints, or proposed works not yet funded.
Looking to buy in apartment Melbourne and need a conveyancer?
Understanding the implications of being involved in an owners corporation can make your journey to homeownership much easier.
If you need assistance with your property purchase, the experts at Haitch Conveyancing are here to support you through the buying process. Contact us today to get started on your path to owning your apartment.
