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THE DECISION-MAKING PYRAMID

The owners corporation committee doesn't have the liberties just to pass any decisions it wants to.

The owners corporation committee, while being the decision making arm of the owners corporation, is still regulated by a range of processes. As such, committee is not the be-all and end-all of all decisions affecting the owners corporation.

The owners corporation and the committee are bound by the plan of subdivision, which allocates the proportion of fees that each lot owner pays, and clearly specifies which areas are common property (owners corporation jurisdiction) and which areas are private.

The power to change the plan of subdivision does not reside with the committee. Only a unanimous resolution, where every lot owner is in agreement, can amend the plan of subdivision.

The committee may not make resolutions which contravene any of the governing documents, which include the owners corporation rules, the Owners Corporations Act, the Owners Corporations Regulations, and a raft of other legislation pertaining to trust accounting, tax law, corporations law, contract law and building codes. For more information, see the article on Governing Documents.


Existing contracts for service providers such as lift mechanics, building managers, garage door maintenance, and even the owners corporation manager are not able to be altered by the committee. This doesn't mean that a committee cannot decide to terminate a contract; rather it means that in the event that the committee does terminate, it is bound to the termination clauses in that contract.


The Owners Corporations Act 2006 (Vic) specifies when a special resolution (requiring support of 75% of all owners) or unanimous resolution (requiring support of 100% of owners) is required. Items such as starting legal action, or amending the owners corporation rules, require a special resolution. As such, the decision to amend rules cannot be made by the committee, for example.


The committee is bound by its fiduciary duties to uphold any resolutions passed at and AGM. The expenditure for the annual budget, for example, once ratified by the AGM is not to be undone by the committee. Many committee members believe that it is their duty to approve each and every invoice, but this is not always in the interests of all lot owners.


Case study - expenditure approval


If the AGM has passed a budget of $20,000 a year for lift maintenance, and there is a lift contract in place to the value of $20,000 a year, it is not the role of the committee to instruct the owners corporation manager to withhold payment from the lift company on receipt of an invoice of a regular invoice. To do so is to the detriment of all lot owners, who have approved the budget in good faith. If the committee is unhappy with the price or service level of the lift maintenance provider, it is the committee's role to review the contracts in the future, rather than expose the owners corporation to liabilities (in this case, the potential for legal action against the owners corporation). There would be no good faith basis for refusing approval for payment of this invoice.

 

Are you looking for further clarity into the roles and responsibilities of the committee? Melb OC can answer your queries. Call us today on 03 9108 3910.

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