How do you comply with the provisions of Section 32 of the Sale of Land Act 1962 (“Act”), if you have an inactive Owners Corporation?
Section 32 Vendor’s Statement Disclosure Requirements
For anyone selling property in Victoria, disclosing certain information to a potential purchaser via a Section 32 Vendor’s Statement (‘Vendor’s Statement’), is a legal requirement. The Vendor’s Statement must be provided to the purchaser before they sign a Contract of Sale and contains all required information as detailed in Section 32 of the Act.
A Vendor’s Statement is important because it discloses information that is not readily available to a prospective purchaser while inspecting a property. This includes information that is solely known to the Vendor and is difficult to extract, even after undertaking due diligence checks. This gap, which is created by the information known to the vendor and the information available to the Purchaser, puts the Purchaser at a disadvantage. This may result in a Purchaser buying a property they would not have, had they been aware of such information or paying a higher price. Therefore, with the Vendor’s Statement, the purchasers are in a better position to negotiate a deal with the Vendor.
What is an Owners Corporation?
An Owners Corporation is a legal entity that is incorporated when a plan of subdivision is registered, to collectively manage the common property on the plan. An Owners Corporation is empowered to make rules are be binding on the corporation, owners and tenants. These rules relate to the use of common property and the lots. However, such rules cannot be in contravention of the legislation governing strata titles or any other laws.
Under Section 32F of the Act, the Vendor’s Statement must:
- specify the information which must be in an Owners Corporation Certificate or attach a current Owners Corporation Certificate; and
- provide copies of:
- the Owners Corporation Rules; and
- the resolutions of the last annual general meeting.
However, the above requirements do not apply where the Owners Corporation is considered to be inactive.
What is an Inactive Owners Corporation?
For the purposes of Section 32F to be regarded as an Inactive Owners Corporation, the Owners Corporation must not have, in the past 15 months:
- conducted an annual general meeting;
- fixed any fees; and
- held any insurance policy.
Under Section 32F, the vendor is just required to specify in the Vendor’s Statement that the Owners Corporation is inactive.
What this means for a Vendor?
On a general overview it may seem that if the Owners Corporation is inactive, then all a vendor has to do is specify this in the Vendor’s Statement. However, the requirements are more complicated than that.
Under Section 11 of the Act, a ‘person cannot sell a lot affected by an Owners Corporation unless the vendor or the Owners Corporation has a current insurance policy in accordance with the Owners Corporations Act 2006 (the ‘OC Act’).
Under the OC Act, an Owners Corporation is required to take out a number of insurance policies including:
- reinstatement and replacement insurance for all buildings on the common property; and
- public liability insurance.
All other Owners Corporations are required to comply with the insurance requirements unless there is no common property. There is a further exemption from the insurance requirements for Owners Corporations for a 2-lot subdivision.
A vendor of a 3 or more lot subdivision should be aware that its Owners Corporation is unlikely to be “inactive” because of its insurance obligations unless there is no common property, and a unanimous resolution has been passed to resolve that each lot owner is to arrange their own insurance. The vendor in such case should check that the Owners Corporation has complied with all of its insurance policies or else the Vendor, whilst not acting as a Manager, has arranged for common property insurance and other owners have contributed to the cost. In that case, the vendor can provide an informal Owners Corporation Certificate setting out the insurance particulars and a statement that for all other purposes the Owners Corporation has been “inactive”.
It is not uncommon to see that the Owners Corporation has ignored the common property insurance obligation and then the problem arises for any owner who decides to sell. The law requires that, for any subdivision of 3 or more lots, the insurance policy for common property must be in place at the time of sale. In fact, if the insurance is not in place, this gives the purchaser the right to avoid the contract anytime before the settlement.