Owners Corporation No. 5 PS326559B v Owners Corporation No. 1 PS326559B [2018] VCAT 765 | Case summary

Owners Corporation No. 5 PS326559B v Owners Corporation No. 1 PS326559B [2018] VCAT 765 | Case summary | Zoe

[35]

Accordingly, as a consequence of registration, the buildings (including part of a building and any structure work or object or any part thereof or any appurtenances thereto), and the land comprised in the above-mentioned Certificates of Title, were subject to the requirements of the HB Act. And, any person seeking to develop or subdivide the land on which the registered Foy and Gibson buildings were situated, was required by section 26 of the HB Act to obtain a permit from the HBC. An agreement with the Minister which bound the owner to the preservation maintenance or care of the registered buildings on the land was, however, a separate discretionary arrangement.
For present purposes it is appropriate to note that the Heritage Act 1995 [5] (the Heritage Act), assented to on 5 December 1995 superseded the HB Act.
Among other things, the Heritage Act provided that all "places registered on the register of historic buildings under the [HB Act] immediately before the commencement of [section 19 of the Heritage Act]" must be recorded on the Victorian Heritage Register[6]. By section 3 of the Heritage Act 'places' included buildings. The definition of 'building' under the Heritage Act, however, differs marginally from that contained under the HB Act ("includes structure, work and fixture and any part of a building, structure, work or fixture").
In summary then, Historic Building No. 755 was deemed to have been included on the Victorian Heritage Register from the commencement of section 19 of the Heritage Act on 23 May 1996. Section 190 of the Heritage Act relevantly deemed references to the 'register of historic buildings' and 'registered buildings' under the HB Act to be references to the 'Heritage Register' and 'heritage places' under the Heritage Act respectively. And under the Heritage Act the reference to a permit or to a covenant in relation to the HB Act was deemed to be a reference to 'a permit' or to 'a covenant' under Part 4 of the Heritage Act from the commencement of section 190 of the Heritage Act on 23 May 1996.[7]

[73]

Importantly, whereas the OC Act has made provision since 2007 for an owners corporation to prepare a maintenance plan for the property for which it is responsible and establish a maintenance fund in its name,[19] there was no statutory equivalent of these provisions when the Permit was granted in 1993 allowing, as it did, subdivision of the land on which the registered buildings were situated.
The submission prepared by the Conservation Architects on behalf of the owners of 150 Oxford Street Collingwood, was said to address: "the identification of the significance of the buildings located on the site, the nature of long term works required to ensure their conservation, the preparation of guidelines for future works and the development of a draft guidelines to be incorporated into the body corporate rules. The intent of the submission is to establish a basis on which the property can be subdivided with certainty that future conservation works which affect the whole of the site will be provided for by the body corporate (sic)".[20]
The submission relevantly incorporated "a full schedule of future conservation related works with a priority listing of works to be undertaken over the next five years",[21] and outlined a proposal for a Works Program and for a Sinking Fund ("Such a method of realising the value of the building and providing for its restoration and maintenance is preferable to the current situation of the complex languishing under a single title with limited viability and partial occupation"[22]).
The Conservation Architect's submission contained a schedule for the Works Program and an estimate of costs over a 15 year period document. The Works Program envisaged rendering repairs, reconstruction of brickwork, restoration of joinery, and other repair and restoration works over an initial 5 year period, and over a 15 year period in all, with some allowance for yearly maintenance, at a total estimated cost of $304,729.[23]
Schedule B set out a schedule of other conditions the Permits Committee (A) of the HBC resolved to impose as follows:

[82]

The members of the Body Corporate similarly covenanted with and undertook to the Body Corporate not to do the acts and things prohibited by Permit Rule 2 unless they obtained the written approval and consent of the Body Corporate and the HBC.[27]
Permit Rule 3 required that the Body Corporate and the members comply with the terms and conditions of the Permit.
Permit Rule 4 provided for implementation and review of the Works Program "prepared for inclusion as a condition of the Permit." To this end the Body Corporate was required to appoint an appropriate consultant to devise the method and manner of implementing and carrying out of the Works Program, the commencement of which was required within 4 years of the issue of the Permit. The Body Corporate was required to work with and co-operate with the HBC in the implementation and carrying out of the Works Program, and, either at the end of the calendar year following completion of the initial works program, or within five years from the date of the Permit (whichever occurred sooner) "update the works program and advise the HBC on the preservation and/or maintenance works required or needed to be carried out on the common areas for the following five years and such updated program shall cover all designated structures on the HBC register".[28]
Permit Rule 5 provided for the establishment of a Sinking Fund. Once established, the Sinking Fund was to be expended progressively on the implementation of the Works Program. The fund was to be generated by an annual levy to be determined by the Body Corporate and adjusted from time to time to accommodate unforeseen additions to the Works Program. The Body Corporate was fixed with the responsibility of determining the proportion of liability of any one owner for contribution to the Sinking Fund and for ensuring that sufficient funds were available to undertake the works for any five year period.[29]
Both parties have complained about the absence of relevant records held by BC1, now OC1. As mentioned, they attribute this to mismanagement by Asset Management in the administration of the BC1 over many years prior to the removal of the manager in 2014.
The owner named on a copy of the Permit produced and tendered at hearing was Nejat Mackali.[30] Based on the documents tendered, specifically the documents relating to a signed Contract of Sale entered into in mid-1995 and the Body Corporate Rules, it is apparent that, of the 7 lots created by the Plan, several lots, including Lot 6, had been sold by Cambridge, probably before registration of the Plan and the Body Corporate Rules, and before Cambridge entered into a Contract of Sale on 21 June 1995 to also sell Lot 1. I infer that, as a registered proprietor of Lot 6, Nejat Mackali was likely one of several permit holders from the date of the grant of the Permit on 14 October 1993, and under section 28 of the Act, as an owner of a specified lot on incorporation of BC1, Nejat Mackali was one of the first members of BC1.
The grant by the HBC of the Permit in October 1993, requiring as it did compliance by the Body Corporate and its members with the Permit terms and conditions,[31] and the assertion that the Permit Rules were lodged by the developer, with the HBC pursuant to the Plan, and subsequently endorsed and/or approved by the HBC, were not contentious.[32]
OC1, nonetheless, contested OC5's further submission to the effect that, the incorporation of BC1 was subject to the Permit, and that endorsement and/or approval of the Permit by the HBC enabled "the registration of the subdivision and the creation" of BC1. OC1 submits that OC1 was not a party to, or bound by the Permit, which was initially granted to a developer.
Obviously, BC1 was not incorporated under the Act until registration of the Plan in 1994, and was not a permit holder. OC5 submits, and I accept, that in keeping with recent authority to this effect, a planning permit's rights run with the land, in this case, the right to develop and subdivide the land specified in the HB register.[33]
The granting of a permit by the HBC was required by sections 26(2)(c) and (3) of the HB Act. The Permit was clearly a pre-requisite to the registration of the Plan some 4 months later. The development and subdivision of the land contemplated by the Plan was to be subject to the Permit, and in that sense, the granting of the Permit by the HBC enabled the registration of the Plan, which in turn triggered incorporation of BC1 under the Act.
The Body Corporate Rules next discussed were not expressed in similar terms to the Permit Rules. As stated, the intent of the latter rules was to ensure the preservation and maintenance of common property and common areas of Historic Building No. 755. Whereas, whilst the Body Corporate Rules appeared to progress an objective of the HB Act and the Permit to preserve and conserve the registered buildings, the responsibility assumed by BC1, additional to its responsibilities under the 1989 Regulations, was for the repair and maintenance of the exterior façade of lots affected by BC1.

[98]

By Contract of Sale entered into on 21 June 1995 Cambridge sold Lot 1 on the Plan (referred to in the contract as "The Power House") to Norma Rose Walker and Cole Sopov (the Contract of Sale).[40] Walker and Sopov were the plaintiffs in the Supreme Court proceeding heard by Justice Eames in 2001.
The sale was made subject to any easements and covenants disclosed in the Vendor's Statement.
The purchase was also subject to Special Conditions. Under Special Condition 17, the Contract of Sale was conditional upon the vendor obtaining approval from the HBC of its consent to sale of the property by the vendor to the purchaser. In this regard, the vendor, Cambridge, also reserved "the right to negotiate and settle the final terms of the agreement with the Historic Buildings Council to be entered into pursuant to the permit referred to in the vendor's statement, of the form of the amended Body Corporate Rules to be provided pursuant to that permit, and of the covenant to be placed on the title to the property."[41]
The Vendor's Statement relevantly provided information concerning any easement, covenant or other similar restriction affecting the property and included a copy of the Permit as earlier mentioned.
The information provided, among other things, mentioned that conditions 1 and 4 of the "First Permit and the Second Permit" had not then been satisfied, and that formal documents concerning these permits were being finalised between the vendors and the HBC. The nature of the First Permit and the Second Permit was not the subject of evidence or submissions in the present application.
The Vendor's Statement, nonetheless, relevantly contained copies of
- ➢ The Permit and permit documents. The latter included 10 sheets of 11 sheets of the Plan documents endorsed by the HBC in 1993.[42]
- ➢ Edition 1 of the Plan registered on 7 February 1994, consisting of 11 sheets.[43] The last of these sheets entitled: 'SHEET 11 OF 11 SHEETS,' contains the same rules as the Standard Rules and Special Rules registered on 29 November 1994, after incorporation of BC1.[44]
- ➢ An unexecuted draft agreement between the vendor, Cambridge (at the time the registered proprietor of lots 1, 3 and 4 on the plan), the proprietors of Lots 2, 5, 6 and 7 on the Plan, the Body Corporate, the Minister, Robert Roy Cameron McClellan, and the HBC (the proposed Agreement with Minister), as well as a copy of a document entitled "BODY CORPORATE RULES PLAN NO. PS326559B SHEET 11 OF 11 SHEETS" (the proposed Agreement with Minister Rules).[45] As the extracts from the proposed Agreement with Minister set out below show, the proposed Agreement with Minister Rules express in a more comprehensive fashion than either the Special Rules or the Permit Rules do, the objective of the HB Act to preserve the appearance of the registered buildings.
Under the proposed Agreement with Minister, Cambridge, the proprietors of the other lots, and 'the Body Corporate' (the latter being the registered proprietor of the common property comprised in the Plan on Certificate of Title Volume 10154 Folio 600, which I understood to be BC1) would enter into a covenant with the Minister, with the intent that the burden of the covenant be annexed to and run at law and in equity with each Certificate of Title.
Among other things, the terms of the covenant stipulated that Cambridge, the proprietors of the other lots, and the Body Corporate, would procure that the rules of the Body Corporate incorporate specific rules.
Omitting the formal parts, the substance of the proposed Agreement with Minister is set out below:

[154]

Rules 1.7, 3 and 4 must not be changed without first obtaining the written consent of the Council.
OC1 submits, and I accept, that apart from publication of this proposal, as required by subsection 41(7) of the HB Act, the documentary evidence did not establish that the proposed Agreement with Minister was executed in the form attached to the Vendor's Statement, or at all.
The extract from the Government Gazette dated 14 March 1996 only establishes publication of a call for written submissions in regard to the proposal for the then Planning Minister to enter into a covenant under section 41 of the HB Act with the Body Corporate and other owners of the registered building "binding the owners to the preservation, maintenance and care of the Registered Building pursuant to the requirements of Condition No. 1 of Historic Buildings Council Permits Nos 1943 and 2292."[47] Notably, the second of the two permits to which the notice referred was not the subject of evidence or submissions in the application before the Tribunal.
At hearing OC5 informed the Tribunal that the Heritage Council (formerly the HBC), and the local council, had not been able to produce an executed copy of a covenant with the Minister in response to OC5's Freedom of Information requests, and further that enquiries directed to the Minister of Planning's office had not been fruitful in this regard.
In summary then, the evidence did not provide an adequate basis from which it might be inferred that the proposed Agreement with Minister was executed. I could not be satisfied of a number of matters. Firstly, that the Minister had decided to enter into the covenant in the form attached to the Vendor Statement or at all. Secondly, that the document had been executed by the parties. Thirdly, that any subsequent decision made by the Minister to enter or refuse to enter into the proposed covenant with the Minister, was published in the Government Gazette in accordance with subsection 41(11) of the HB Act. Fourthly, that as required by clause 3 of the proposed Agreement with Minister, application had been made for the entry of the memorandum of covenant, or steps had been taken to procure its registration by the Registrar of Titles on the relevant Certificates of Title. And, lastly, that, as required, the proposed Agreement with Minister Rules were registered under the 1989 Regulations.
OC5 submits that, whilst it cannot adduce evidence of execution, the evidence as a whole demonstrates adoption of the terms of the proposed Agreement with Minister by OC1.
I disagree. This is not to deny, however, that by its conduct prior to the dispute arising about OC1's responsibility for the cost of repairing the Southern Chimney stack, the unlimited body corporate, BC1, appears to have taken steps to implement at least some of the requirements of the Permit, which were intended to ensure conservation and preservation of Historic Building No. 755.
There is, however, no evidence that, as originally required by the Permit, a covenant had been placed on all titles resulting from the subdivision in accordance section 41 of the HB Act before Cambridge entered into the Contract of Sale for the sale of Lot 1 in 1995. The proposed Agreement with Minister, nonetheless, suggests an attempt to ensure compliance with the Permit conditions by obtaining agreement from the proprietors for the time being of the land that they and their successors in title:
1. would be bound in the manner described as to the development or use of the land and as to the preservation, maintenance and care of the registered buildings; and
2. would make subsequent purchasers of any of the lots in the Plan aware of the registration of the land under the HB Act; the requirements of the Permit; and the requirement from time to time to contribute to a sinking fund for the repair, maintenance and restoration of the façade of the registered building.
Two observations can be made at this juncture. The first is that it is not the function of an owners corporation to enforce compliance with a planning permit's conditions through the making of rules. The second is that, had the agreement been executed in the form contained in the materials, the proposed Agreement with Minister and the proposed Agreement with Minister Rules employ language similar to that used in Special Rule 2.1 to articulate the unlimited body corporate's responsibility for the maintenance and repair of the exterior façade of all lots ("Shall be solely responsible for the maintenance and repair of the exterior façade, including external windows, of all lots within the plan of subdivision").[48]

[155]

After some initial reluctance to concede the existence of a sinking fund, at hearing OC1 conceded that there was evidence of the establishment of such a fund, albeit one that the parties agree had no funds when Asset Management's appointment was revoked in 2014. OC1, nonetheless, submits that the evidence did not establish the purpose of the Sinking Fund, or what monies, if any, were expended from it.
In this application, however, the determination of liability to repair the top section of the Southern Chimney stack is not predicated on what funds, if any, were available from the Sinking Fund established from monies levied against lot owners, before or since OC5 was created.
The Permit Rules were a condition of the Permit issued by the HBC. These required that a progressive Work Program over a 15 year period (which contemplated unforeseen additions to the program) be established and implemented (the stated purpose being to conserve the heritage listed buildings), and further required that a Sinking Fund be established. As such the Permit Rules were not Special Rules of BC1 made under Regulation 407 of the Regulations, or subject to sub-regulation 407(3), which, as mentioned, stipulated at the time that rules made by the BC1 would not come into effect until recorded by the Registrar.
OC5 submits, and I accept, that a Works Program and a Sinking Fund were established (at least on paper) prior to entry into the Contract of Sale by Cambridge, and prior to the creation of OC5. It may be inferred from the documents tendered, and from BC1's conduct during that period, (so the submission went), and I also accept, that BC1 was acting in accordance with the requirements of the HBC.
This is not to say, however, that the evidence before the Tribunal demonstrated that, for instance, BC1 specifically acted to implement the provisions of the proposed Agreement with Minister, or that absent further evidence, various statements recorded in the documents tendered are capable of being understood to reference that proposal. For instance, OC1 submits, and I accept, that there is no evidence from which the precise nature of the document, the 'Historic Building Council deed', mentioned in the minutes kept for the Annual General Meeting (AGM) on 20 August 1996 and referred to below, might be ascertained.
The documents tendered relevantly contain:
- ➢ The Permit and the Permit Rules discussed above, under which, among other things, the Body Corporate was required to establish and implement a Works Program over a 15 year period, the stated purpose of which was to ensure the preservation and maintenance of the common property and common areas in respect to the land comprised in the Plan;
- ➢ Copy Body Corporate Certificate for Lot 1 on the Plan, dated 30 May 1995, and issued under Regulation 407 of the 1989 Regulations, and contained in the Vendor's Statement materials signed by the vendor and purchaser on 21 June 1995. The Certificate pre-dates the proposed Agreement with Minister. It relevantly refers to special fees or levies already struck and due and payable and described as: "Sinking Fund payable in quarterly instalments in advance at $651.88 per quarter".[49]
- ➢ Copy correspondence, Agenda and Minutes of the AGM of the BC1 members, held on 20 August 1996.[50] These documents record, among other things, that a motion to approve legal costs and proceed with execution of 'Historic Building Council deed' was passed by a majority. As recorded, it appears that the owners of Lot 1 opposed the motion, ostensibly because they were not prepared to "execute the deed in the current form as they (believed) that it differs from the original form that they were advised of at the time of their purchase".[51] The minutes, nonetheless, indicate that, despite opposition from the owners of Lot 1, a motion put forward regarding the "Sinking Fund" ("that the deed of agreement with the Historic Building Council be complied with and that all lot owners whom (sic) have not executed the document be required to do so forthwith and that further the sinking fund amount for the 1996/97 year be as per the 1995/96 year at $36,300"), was carried;[52]
- ➢ Copy documents entitled 'Reconciliation of Expenditure Summaries and Lot Liabilities for PS 326559B, period 01/07/1997 - 30/06/1998' and 'Budgeted Insurance Expenditure Summaries and Lot Liabilities for PS 326559B Insurance Period 01/07/1997 - 30/06/1998'; 'Sinking Fund Expenditure Budget, Accrued to Lot Account' and 'Total Budgeted Expenditure Summaries and Lot Liabilities for PS 326559B'; and 'Sinking Fund Expenditure Budget Accrued to lot Account Period 01/07/1999 - 30/06/2000' respectively.[53] Whilst the expenditure summaries document did not record Body Corporate expenditure on identifiable Works Program items in the period 01/07/1997 to 30/06/1998, the Sinking Fund expenditure documents relevantly record that over 5 and 10 year periods owners of the lots, including the owners of Lot 1, were to be levied on a proportionate basis under a sinking fund expenditure budget for identifiable Works Program items. In 1998 and 1999 Lot 1 did not have common property, yet, as recorded, its portion of the total levy was $2,704.35 in each of these years;
- ➢ Copy 'Body Corporate Tax Invoice' document dated 21 March 2001 for Lot 1. This document shows that BC1 levied the owners of Lot 1 'Body Corporate Fees' for the period 1 July 2000 to 31 December 2000, Body Sinking Fund Fees' ($2,048.75) for the same period, and an 'Annual Insurance' payment for the period 1 July 2000 to 30 June 2001.
A copy of a document entitled: 'Working Paper Subdivision, Façade and Sinking Fund Review' and dated April 1999 (the Working Paper), was also among the materials tendered by OC5. OC5 submits that the document was commissioned by BC1 primarily for its benefit. OC1 contests this conclusion, and submits that no weight should be afforded assertions of fact contained in a document that was unsigned, and of which the authorship was not apparent.
In my view, whilst the authorship of the document is not stated, its tenor, and the fact that the document purported to provide an overview to the lot owners of the interrelationship between "their own lot and the building they are located in and the Body Corporate No. 1" was consistent with the document having been commissioned by BC1.[60]
In this regard I also note that various statements made in the Working Paper are reflective of evidence found in several of the documents tendered, and of matters of recorded history so far summarised. For example, the statement to the effect that:
- ➢ In 1999 BC1 had control over the façade, and "(t)his was put in place by Heritage requirements and to ensure a continuity in the standard of appearance and repair to the exterior of the whole complex",[61] reflected the intent of both the Permit and Special Rule 2.1.
- ➢ BC1 had in place a sinking fund for façade works, which was collected on the basis of lot entitlement and liability (prior to incorporation of OC5), was reflected in several of the documents tendered and referred to above.[62]
- ➢ Subject to approval from Heritage Victoria (the successor to the HBC) of how and when works are performed, BC1 was responsible for the "detail of the works on all lots, ie how and when the works are done",[63] was reflected in the allocation of responsibility for works under the Works Program and Special Rule 2.1.
In summary, based on the available evidence, I was satisfied that, after incorporation of BC1 in 1994, but prior to incorporation of OC5 in 2001, as required by the Permit, both a Works Program and a Sinking Fund were likely established under the auspices of BC1, and that owners of lots, including the owner of Lot 1, which at that time was not assigned responsibility for any common property, were levied for repair and other maintenance works under a Works Program established to conserve and preserve Historic Building No. 755.
Notably, Owners Corporation Certificates issued by OC1 in 2012 also confirm the existence of a fund identified as a façade maintenance fund which was payable on a ½ yearly basis by lot owners.[64] In these certificates OC1 reported having raised "a façade maintenance fund ... to inspect and maintain the safety and integrity of the cream rendered portions of the external façade in accordance with lot liability, however these funds are accounted for on a lot by lot accrual basis and expenditure is debited against individual lots on a pro-rata and as expended basis and common costs are apportioned to lot liability". However, OC1 submits, and I accept, that there is no evidence of any allocation of the funds to works on the chimney, or that agreement had been by then negotiated with OC5 (where "the exterior façade is now common property") in respect to its "contribution requirements (if any) to the Façade Maintenance fund" to OC1.[65]

[167]

On 10 October 2001 Body Corporate No 5 (now OC5) was registered in respect to Lot 1 pursuant to Justice Eames' direction to the Registrar of Titles to process the plaintiffs' application for registration of a plan lodged under subsections 32(3) and (4) of the Act.[66]
As a limited Owners Corporation, BC5, now OC5, affects 20 lots and Common Property 5.[67]
Authority indicates that, on a proper construction of the provisions of the Act and the Transfer of Land Act, the ownership or the vesting of common property vests in a body corporate as the registered proprietor of a fee simple in the common property, whereas the equitable or beneficial ownership but not the legal ownership of the common property vests in the lot owners, if section 28(d) of the Act comes into play.[68] However, in keeping with the findings of Justice Eames in Walker, and set out in the extract from paragraph 139 above, on this occasion, Common Property 5 vested in the lot owners of BC1, not in BC5 or its members because sections 28(d) and (e) of the Act did not apply.
Furthermore, whilst in Walker the question of who was liable to maintain Common Property 5 was not directly addressed, the argument advanced on behalf of the Plaintiff that the creation of OC5 would not extend the liability of other lot owners, and Justice Eames' reasoning appear to have been predicated on the newly created limited body corporate, OC5, being responsible for maintaining Common Property 5.[69]
It was common ground that prior to re-subdivision on 10 October 2001 both the Northern Chimney and the Southern Chimney were located within the boundaries of Lot 1. Following registration of Edition 23 of the Plan in accordance with the decision in Walker, the Northern Chimney is now located wholly within the boundaries of lot 1C.
The Tribunal was informed that under the re-subdivision, the Southern Chimney stack became common property because the subterranean carpark, which also forms part of the newly created common property, Common Property 5, required a ventilation flue. The external face of the square base of the Southern Chimney lies within the boundaries of Lot 1C, whilst the remainder of the base, and the whole of the chimney stack are found within Common Property 5.[70]
Notice dated 25 October 2001 notified the making of rules in accordance with a special resolution passed on the same date under Regulation 220(4) of the by then applicable regulations, the 2001 Regulations. Regulation 220(4) authorised the making of rules of a body corporate additional to the Standard Rules, which according to Regulation 219, applied to all bodies corporate.[71]
In addition to being bound by the unlimited BC1 rules on the Plan, members of BC5 were bound by Additional Rules, which, as required by the 2001 Regulations only took effect following registration on 12 November 2001.[72] The Additional Rules provided as follows: [73]

[178]

Property Inspection Report prepared for Asset Management and dated 3 August 2012, tells us that a Structural Engineer from Cardno Victoria Pty Ltd conducted a visual inspection only of the Oxford Street and Cambridge Street masonry facades of 150 Oxford Street Collingwood on 6 May 2012, and made a record of "significant" structural defects noted in the masonry walls.[74] That this visual inspection failed to identify significant structural defects in the Southern Chimney at the time, is of no consequence in the current application, given the extent of the damage to the Southern Chimney reported some months later.
It appears that inspection of the Southern Chimney on 22 November 2012 at the request of the Municipal Building Surveyor for the City of Yarra, revealed that the 8 m section at the top of the southern chimney stack was damaged and in danger of collapse. By Building Notice made under section 106 of the Building Act 1993 (the Building Act), the OC1 was required to show cause why the top 8 m section of the Southern Chimney stack should not be demolished.[75]
One consequence of OC1's failure to make any representations within the time specified was that, by further notice dated 22 February 2013, and issued pursuant to section 111 of the Building Act, OC1 was ordered to demolish the top 8 m section of the Southern Chimney stack.[76]
As this application demonstrates, OC1 has not accepted responsibility for carrying out the required remedial repairs to the Southern Chimney stack.
By correspondence and notice, each dated 11 June 2013, under section 106 of the Building Act, the Municipal Building Surveyor next required OC5 to show cause why the top 8 m section of the Southern Chimney stack should not be demolished.[77]
By letter dated 19 February 2014, the City of Yarra notified OC 5 that it had received a structural engineers review and report prepared by David Hogg of BHS Consultants in relation to the notice issued under section 109 of the Building Act. The letter was accompanied by a Building Order made pursuant to section 111 of the Building Act requiring OC5 to "(c)arry out the remedial works to the southern brick chimney stack as required by the Structural Review and Report dated October 2013 that was prepared by David Hogg of BHS Consultants" within 120 days of service of the Order.[78]
It appears that with permission from the Heritage Council, remedial work which has since been performed by OC5, secures the Southern Chimney stack pending resolution of the dispute as to which body corporate is responsible for the cost of repair.

[193]

In my view an interpretation of the phrase 'exterior façade' in the context of the Special Rules must have regard to: the plain language of the rule; the conservation and preservation history of Historic Building No. 755; and to the conservation and preservation objectives affecting the registered buildings, which, as defined by the HB Act at the time, included "part of a building and any structure work or object or any part thereof or any appurtenances thereto".[88]
When entered into the Historic Buildings register, the chimneys were not part of any common property, yet both chimneys clearly fell within the definition of 'building' under the HB Act and the Act. The chimneys were contained in one of seven lots and, according to the Special Rules, BC1 was fixed with the responsibility of maintaining and repairing the exterior façade of all lots affected by BC1. Under the Act, all of the land was affected by BC1.[89] BC1 was the legal proprietor of all of the common property on the Plan, and five lots (Lots 2, 3, 4, 5 and 6) were liable for all body corporate expenses of repairing and maintaining common property servicing their lots, which in the case of two lots involved all costs associated with the operation repair and maintenance of the air-conditioning unit located within common property servicing their lots.
At hearing, OC1 conceded that prior to the creation of OC5, the chimneys were located in Lot 1. Under the rules OC1 was responsible for maintenance and repair of the exterior façade of all lots affected by BC1, and, depending on how the phrase 'exterior façade' was interpreted, if any part of a chimney was shown to be part of the exterior façade of any lot as shown on the Plan, rather than say within a lot, under Special Rule 2.1 BC1 was responsible for its repair and maintenance.
Leaving to one side for the moment the validity of Special Rule 2.1, OC1 submits that OC1 is not responsible because, as the survey results confirm, that part of the chimney requiring maintenance and repair is now located in common property, not a lot. And, further submits that, properly construed, Additional Rule 2.1 means that the repair and maintenance of the historic façade of Common Property 5 is the responsibility of the members of OC5.[90] If these submissions are upheld, even had the evidence before the Tribunal demonstrated that the Southern Chimney stack was part of the exterior façade of a lot on the Plan registered in 1994, a finding that the phrase 'exterior façade' included the external face and outer skin of the chimney would not have assisted OC5's case for declaratory relief.

[195]

It is convenient to deal with OC1's submissions on these matters next, before I turn to also consider the construction and effect of Additional Rule 2.1.
OC1 submits that properly construed, the legislation (the Act and the later OC Act) and the 1989 Regulations require OC5 to maintain and repair Common Property 5 and this is determinative of the application. Alternatively, OC1 submits that Special Rule 2.1 is invalid.
I have already mentioned sections 4(1)(d) and (e), which extend the application of the Act to the creation of common property and to a body corporate, and Regulation 301(1)(c)(i) of the 1989 Regulations. The latter required a body corporate to keep "in a state of good and serviceable repair and properly maintain" the common property. Regulation 207(1) of the 2001 Regulations, which came into operation before incorporation of OC5 similarly requires a body corporate to keep in a state of good and serviceable repair and maintain the common property.
Reliance was also placed on 27(2B)(b) of the Act. Whilst on registration of the plan for re-subdivision, the legal ownership of the common property vested in BC1, it has been accepted that beneficial ownership of the common property remained with the members of BC1. Re-subdivision of Lot 1 meant that the newly created common property vested in the members of OC1, whereas the members of the limited body corporate, OC5 had the right to use the common property so created.
More recently, section 27C(3) of the Act has, as OC1 submits, confirmed the entitlement of members of a limited body corporate affecting a lot to use any common property affected by that limited body.
In this case OC1 relevantly asked:
1. Why would Parliament have intended that Lot owners other than those entitled to use common property, pay for repairs and maintenance; and
2. What is the purpose of a limited body corporate, if not to allocate responsibility for repair and maintenance of common property?
Regulations 219 and 220 of the 2001 Regulations in force when OC5 was incorporated have already been mentioned. However, for the sake of clarity, the provisions of the OC Act on which reliance was also placed are set out below, as well as Sub-regulations 201(a) and (b), 207(1)(a) to (c), (2) and (3), and Regulations 501 and 502 of the 2001 Regulations:

[220]

The statutory definition of 'common property' now contained in section 3 of the OC Act does not advance OC5's case. It tells us that this concept means "the land shown on a plan of subdivision or a plan of strata or cluster title". Of course, common property may include equipment or services rather than buildings or structures, and the absence of a more extensive definition should not be an occasion for limiting the meaning and application of the concept in any way.
As can be seen from the provisions of the legislation and the regulations extracted above, they do not differentiate between an unlimited and limited body corporate/owners corporation where a body corporate/owners corporation is required to repair and maintain common property. This is hardly surprising given that, as in the present case, on registration, the Plan only provided for the creation of an unlimited body corporate.
The OC1 submits that responsibility for repair and maintenance of common property as between OC1 and OC5 should be determined on the basis that the limited Owners Corporation, OC5, was originally created to administer Common Property 5 and only members of OC5, are entitled to use Common Property 5. OC1 submits that these factors; that is the purpose for creating OC5, and the right to exclusive use of the common property created, indicate that the regulations and the legislative provisions should be construed as requiring the members of OC5 to repair and maintain Common Property 5.
OC5, on the other hand submits that the premise of the submission made is unsustainable, where, as in this case, OC1 has and continues to perform functions relating to Common Property 5. An illustration given of the latter conduct is that OC1 has and continues to insure all of the buildings in the complex, including those affected by Common Property 5, and levies lot owners accordingly. Apart from showing that BC1 continued to levy fees for 'Façade & Building Maintenance' after incorporation of OC5, the copy 'Body Corporate Tax Invoice' documents for Lot 26a, dated 17 March 2003, 28 June 2004 and 27 June 2005 respectively, confirm that BC1 also levied the owner of Lot 26a for insurance.[93] I infer from this material that a similar levy was imposed by BC1 on the owners of the newly subdivided Lot 1 after 2001.
The conduct of OC1 in this regard is not, however, decisive of the question of where responsibility lies for repair and maintenance of common property according to the legislative scheme.
A lot may be affected by more than one body corporate/owners corporation, so long as one of these entities is an unlimited body corporate/owners corporation. However, the vesting of the title to Common Property 5 in OC1 did not of itself create an obligation to maintain and repair the common property. On the contrary, as earlier mentioned, the argument advanced by the plaintiff in Walker, and Justice Eames' decision, proceeded on the basis that registration of the plan for re-subdivision under section 32(3) of the Act would not create a liability for OC1.
In my view the intent of Parliament under both the Act and the OC Act (and the Regulations) was and is plain. On registration of the re-subdivision plan, responsibility for the repair and maintenance of common property accrued to the newly created limited body corporate/owners corporation, where, as in this case, it was created to manage and administer Common Property 5, and where the members have an exclusive right to use the common property.
What then is the effect, if any, of the rules made before and after incorporation of the limited Owners Corporation, OC5?

[227]

Under the Transitional and Savings Provisions of the OC Act, the rules of a subdivision body corporate in force immediately before the commencement of the OC Act continued in force and were deemed to be the rules of the owners corporation under the OC Act to the extent that they were not "inconsistent with" the OC Act or the regulations made under the OC Act.[94]
When the Special Rules were made and registered in 1994, the equivalent of, for instance, sections 4, 46, 129, 130 and 140 of the OC Act were contained in the Regulations. Section 43 of the Act empowered the Governor in Council to make regulations "prescribing the constitution, duties, functions, powers, rights and liabilities of a body corporate and its members and the duties of occupiers of lots" including the "rules to apply to bodies corporate and their members and the duties of occupiers of lots affected by bodies corporate".[95]
Sub-regulation 301(1)(c)(i) of the 1989 Regulations obliged BC1 to keep in a state of good repair and properly maintain the common property, whereas Regulations 504 and 505, obliged the owners to properly maintain their lot in a state of good and serviceable repair and to care for the common property.
Regulation 407 permitted the making of rules by special resolution for the land affected by BC1, and to include among these rules any of the Standard Rules BC1 wished to retain. The land affected by BC1 meant the lots of which the owners for the time being were the members of BC1 together with the common property for which BC1 was responsible.
In default of the making of rules by special resolution the Standard Rules would have applied. As we now know, BC1 did make a combination of the Standard Rules and the rules I have designated the 'Special Rules'. Sub-regulation 407(3) relevantly provided that the recording of a rule by the Registrar of Titles (as occurred in this case) did not make an invalid rule valid, and one could envisage a circumstance where this regulation was invoked to invalidate a rule that had not been properly made by special resolution. Sub-rule 407(6) also prohibited the making of rules that were inconsistent with the 1989 Regulations or the Equal Opportunity Act 1984.
Whilst the 2001 Regulations made a body corporate responsible for repair and maintenance of common property, and required members to care for their lots and common property, those regulations did not contain the equivalent of Sub-regulations 407(3) or (6) of the 1989 Regulations.
In the present case, OC1 doesn't contend that Special Rule 2.1 was improperly made, simply that if the rule is interpreted as including responsibility to repair and maintain Common Property 5, it is inconsistent with the 1989 Regulations and the OC Act. The inconsistency arises, so the submission went, because on a proper reading of the legislation and the Regulations the limited body corporate (later deemed an owners corporation) is responsible for the repair and maintenance of common property of which the Southern Chimney stack has been a part since the creation of OC5.
As is apparent from the discussion so far, I have accepted that properly construed the legislation and the regulations render OC5 responsible for the maintenance and repair of Common Property 5. Therefore, it is not necessary to decide the validity of Special Rule 2.1. However, for the sake of completeness, it is appropriate to note that, having regard to the material before me, had it been necessary to decide this, I could not have been satisfied that Special Rule 2.1 was invalid on the basis that, contrary to the legislative scheme the rule purported to shift the obligation to maintain and repair common property from the limited owners corporation to the unlimited owners corporation. It is plain from the language of Special Rule 2.1 that it has nothing to do with common property, and is confined to the maintenance and repair of the exterior façade of all lots affected by OC1. In that sense the rule maintains the distinction the legislation makes between lots and common property, and directs attention to the 'exterior façade' of all lots affected by OC1.

[228]

What then was the meaning and effect of Additional Rule 2.1?
With the creation of Common Property 5, and incorporation of OC5's predecessor, BC5, the Additional Rules, among other things, confirmed that the members of the new limited body corporate were bound by the existing unlimited body corporate rules. And, as had been the case for the earlier lot owners with lots serviced by common property in 1994, based on their Lot Liabilities, the members of OC5 became liable to pay the various charges and costs set out in Additional Rule 2.1.
Notwithstanding the history of the levying of fees for a Sinking Fund and for a Works Program to conserve and preserve the heritage listed buildings following registration under the HB Act, any interpretation of the Additional Rule 2.1, where it refers to payment of the costs associated with the 'Historic Façade' must be approached on the basis of the principles of construction to which reference has already been made.
The Owners Corporation Search Report for OC5 contained in the tendered materials sets out the Entitlement and Liability of the members of OC5, which for Lot 1 is 745 units out of 10,000 units in all, whereas the Owners Corporation Search Report for OC1 confirms, among other things, that the land in the Plan is affected by 9 Owners Corporations, and the land affected by OC1 Common Properties 1 to 8 and 15 and all of the Lots, including those contained in Lot 1.[96]
In my view, the import of Additional Rule 2.1 becomes apparent, particularly when the rule is considered with regard to its context in the Additional Rules, and to the likely intent and operation of the Special Rules following registration of the Plan in 1994.
On registration of the plan for re-subdivision of Lot 1, OC1 still carried responsibility for the maintenance and repair of the exterior façade of all lots affected by OC1, including but without limiting the generality of the rule, the windows incorporated in it. However, based on the members' Lot Liability, the members of OC5 were required to pay for the costs and charges mentioned, all of which relate to Common Property 5, including the costs associated with the historic façade to the extent that the latter was affected by Common Property 5. If perchance any part of the chimney contained in Common Property 5 could be said to be part of the historic façade (and that may differ from the exterior façade of a lot) of the registered buildings, Additional Rule 2.1 confirms that the costs associated with this are among the costs for payment of which the members of OC5 are responsible.
In my view this construction of the rules:
1. Is consistent with both the Special Rules and the Additional Rules when read as a whole.
2. Gives the rules effect, where as in this case Lot 1C is affected by OC1 and by OC5. Additional Rule 2.1 only deals with the historic façade which is within Common Property 5, whereas Special Rule 2.1 continues to govern the exterior façade of a lot.
3. Allows for the distinction the Act makes, and the OC Act maintains, between a lot and common property.[97]
4. Is consistent with the outcome in Walker where the creation of common property and the registration of the plan for re-subdivision was permitted under section 32(3) of the Act because the creation of OC5 did not alter the liability of other the Lots not being subdivided.
5. Allows for the transfer of responsibility to OC5 for the costs associated with the historic façade within a lot which is affected by OC5.
6. Looks to the conservation and preservation of the historic façade, albeit not to the extent or in the manner originally envisaged by the heritage authorities. In this regard, it must be borne in mind that, whilst the certainty of future conservation objectives contemplated by the Permit has not been achieved, in part because it appears that not all of the Permit conditions have been met, the rules made by the owners corporations must, as the Special Rules appear to have, take account of the obligations and responsibilities imposed by law.

Owners Corporation No. 5 PS326559B v Owners Corporation No. 1 PS326559B

At a glance

Court

Decision date

Source

Judgment (278 paragraphs)

Owners Corporation No. 5 PS326559B v Owners Corporation No. 1 PS326559B (Owners Corporations) [2018] VCAT 765 (14 June 2018)

Parties

Legislation Cited (11)