Owners Corporations (OCs) play a crucial role in managing common property within strata schemes across Victoria. To ensure that governance and regulatory requirements are proportionate to the size and complexity of an Owners Corporation, a tier system has been established under the Owners Corporations Act 2006. The tier system came into effect from December 2021. Understanding these tiers is essential for property owners, committees, developers and managers to comply with legal obligations effectively.
The Five Tiers of Owners Corporations.
The Owners Corporation tier system in Victoria categorises strata schemes into five levels based on size and complexity. Each tier has different legal requirements, compliance obligations, and governance expectations.
Tier 1 – Large Owners Corporations:
Tier 1 applies to large Owners Corporations that have more than 100 occupiable lots (excluding car parks, storage lots, or accessory units). Due to their size, these OCs have the most stringent governance and reporting obligations, including:
- Independent annual financial audits
- Mandatory maintenance plans and funds
- Election of a Committee at each annual general meeting
- Appoint an Owners Corporation Manager
- Limitation on notice to terminate an OC Manager’s Contract of Appointment
Tier 2 – Medium Owners Corporations:
This tier applies to Owners Corporations with 51 to 100 occupiable lots. A Tier 2 OC has similar governance and compliance requirements to a Tier 1 OC, such as:
- Independent annual financial reviews
- Mandatory maintenance plans and funds
- Election of a Committee at each annual general meeting
- If an OC Manager is appointed, there is a limitation on notice to terminate an OC Manager’s Contract of Appointment
Tier 3 – Small to Mid-Sized Owners Corporations:
Tier 3 encompasses Owners Corporations with 10 to 50 occupiable lots. These OCs have more flexibility in their management structure but still have key responsibilities, including:
- Maintaining common property
- Keeping financial and meeting records
- Holding regular meetings and following proper governance procedures
- Election of a Committee at each annual general meeting
- If an OC Manager is appointed, there is a limitation on notice to terminate an OC Manager’s Contract of Appointment
Tier 4 – Small Owners Corporations:
Tier 4 is for Owners Corporations with 3 to 9 occupiable lots. These smaller strata schemes typically have simplified governance requirements. However, they are still expected to:
- Maintain common property
- Keep financial and meeting records
- Conduct meetings as necessary
- If an OC Manager is appointed, there is a limitation on notice to terminate an OC Manager’s Contract of Appointment
Tier 5 – Two-Lot Owners Corporations:
Tier 5 applies to two-lot subdivisions or a services-only OC.
A two-lot subdivision is when there are only two owners responsible for the management of the property.
A services-only OC is where there is no land or building designated as common property however may have common meters, common supply or service that is unmetered and designated as common property.
These OCs have minimal legal requirements, such as:
- Maintaining common property
- Agreeing on financial contributions and basic record-keeping
- If an OC Manager is appointed, there is a limitation on notice to terminate an OC Manager’s Contract of Appointment
Impact of OC tiers on Limited Owners Corporations.
Limited Owners Corporations (Limited OCs) are created when a plan of subdivision specifies that certain lots share responsibility for only a portion of the common property, rather than the entire development. The tier system still applies to Limited OCs and its impact varies based on the size and scope of the Limited OC.
Understanding how the tier system affects Limited OCs is crucial for ensuring compliance and effective property management within a subdivided development.
For example, a mixed-use development has a total of 150 occupiable Lots made up of the following:
- 5 Retail Shops on Ground Floor
- 145 Residential Apartments from Level 1 upwards
- The development includes a shared car park and amenities on the rooftop.
All lots have access to the car park whilst only the residential apartments have access to the amenities on the rooftop.
In this case:
- An unlimited Owners Corporation is created for all 150 occupiable Lots to manage the car park and shared common areas. This unlimited Owners Corporation would be classified as a Tier 1 Owners Corporation.
- A limited Owners Corporation is created specifically for the 145 Residential Apartments that access the amenities on the rooftop, a dedicated waste room and cleaning corridors from Level 1 upwards. This limited Owners Corporation would be classified as a Tier 1 Owners Corporation.
- A limited Owners Corporation is created specifically for the 5 Retail Shops who have a dedicated waste room and toilet facilities for staff. This limited Owners Corporation would be classified as Tier 4 Owners Corporation.
Understanding how the tier system affects Limited OCs is crucial for ensuring compliance and effective property management within a subdivided development.
Why the Tier System Matters:
The tiered approach ensures that Owners Corporations in Victoria are governed in a manner that aligns with their scale and complexity. The system aims to:
- Reduce unnecessary administrative burdens for small strata schemes
- Ensure transparency and accountability in larger schemes
- Provide clear guidelines for financial management and property maintenance
Appointment of an Owners Corporation Manager:
An Owners Corporation in Victoria can appoint a professional Owners Corporation manager to assist with administrative, financial, and compliance responsibilities. The manager must be registered and operate in accordance with the Owners Corporations Act 2006.
Their duties may include:
- Managing financial records and budgets
- Organising meetings and maintaining records
- Ensuring compliance with legal and regulatory requirements
- Overseeing maintenance and repairs of common property
The appointment of an Owners Corporation manager is particularly beneficial for larger OCs (Tier 1 and Tier 2), where governance and compliance requirements are more complex.
Compliance and Legal Responsibilities:
Each Owners Corporation in Victoria must comply with the Owners Corporations Act 2006 and associated regulations. Failing to adhere to legal requirements can result in penalties, disputes, or mismanagement of common property.
Download The Knight’s OC Tier Guide.
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Understanding the Owners Corporation tier system in Victoria is essential for effective strata management. Whether you’re an owner, committee member, or professional manager, knowing your OC’s tier helps ensure compliance with regulations, proper financial management, and the smooth operation of the common property. If uncertain, seeking professional guidance from an experienced strata manager, such as The Knight, can help you navigate the responsibilities for your Owners Corporation effectively.
This article is for reference purposes only and is not intended to be a comprehensive review of the developments in the law and practice or to cover all aspects of the subject matter. It does not constitute legal or other advice and should not be relied upon this way. Readers should take legal or other advice before applying the information containing in this publication.