This article is about whether the contract between the owners corporation and building manager is sufficient delegation for risk transfer in Victoria.
Question: The owners corporation (OC) is legally responsible for all aspects of the common area. Is the contract between the OC and building manager sufficient delegation for risk transfer, especially for overlooked mandatory requirements or partial, incomplete or late logs?
Answer: The OC retains overall responsibility for complying with its statutory duties.
An owners corporation (OC) has various legal responsibilities under the Owners Corporations Act 2006 (Vic), including the management, administration and maintenance of the common property (Section 4 of the OC Act). These duties must be fulfilled either directly by the OC or under its direction (Section 11(1) of the OC Act).
Where an OC engages a building manager (BM) to assist in managing common property, the relationship is governed by the terms of the contract. While the BM may have specific responsibilities under this contract, the engagement does not transfer the OC’s legal liability to the BM. Rather, the OC retains overall responsibility for complying with its statutory duties.
If a BM breaches its contractual obligations, such as by failing to maintain records, the OC may have grounds to claim against the BM for breach of contract. However, a third party suffering loss due to mismanagement of the common property (e.g. incomplete logs) would generally claim against the OC as the entity responsible for the common property, not the BM. The OC could then seek to recover any losses from the BM to the extent that the BM’s breach contributed to the loss.
A parallel principle was recently reinforced in Ford v Owners Corporation SP24717 (Owners Corporations) [2024] VCAT 547, where a lot owner sought to claim against an owners corporation manager for breaches of the OC Act. Member Rowland held that the OC manager merely follows the instructions of the OC and is not independently liable to third parties for actions taken on behalf of the OC. Similarly, a BM is not empowered to make decisions without the OC’s approval but may be liable to the OC for damages if it breaches its contractual duties.
In conclusion, engaging a BM does not transfer risk or liability from the OC to the BM. The BM is merely an agent of the OC (Liu v Owner Corporation No PS 501391P (Owners Corporation) [2010] VCAT 1441). The BM’s role is subject to the contract, and any breaches may expose the BM to claims from the OC. Nevertheless, the OC retains statutory responsibility for common property management and would be vulnerable to a claim for damages if that duty is not properly discharged.
Fabienne Loncar
Moray & Agnew Lawyers
E: floncar@moray.com.au
P: +61 3 8687 7319
This post appears in the November 2024 edition of The VIC Strata Magazine.
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“Member Rowland held that the OC manager merely follows the instructions of the OC and is not independently liable to third parties for actions taken on behalf of the OC. Similarly, a BM is not empowered to make decisions without the OC’s approval but may be liable to the OC for damages if it breaches its contractual duties.”
At present, aren’t most Strata Managers indemnified against being liable for “anything” according to the Contract of Appointment? This might change if there is some amendment to the Australian Consumer Law?