Navigating the Role of Owners Corporations in Building Defects and Maintenance

Building defects are an increasing concern in Victoria’s rapidly evolving residential landscape. For Owners Corporations (OCs), the legal obligation to manage and maintain common property can become particularly complex and costly when defects arise in newly constructed or ageing buildings. From leaky balconies and cracked façades to combustible cladding, OCs must navigate their statutory duties, funding challenges, and legal recovery options with precision.

Statutory Duties: Who Is Responsible?

In Victoria, the role of an OC is primarily governed by the Owners Corporations Act 2006 (Vic). Under Section 46, an OC is obligated to repair and maintain the common property, including structural elements such as roofs, walls, plumbing, electrical systems, and shared facilities. Crucially, this duty applies regardless of whether the OC has sufficient funds available or is pursuing recovery from builders, developers, or insurers.

Common property generally includes any area not defined as part of a private lot in the plan of subdivision. Determining whether a defect affects common property or a private lot is often the first step and may require expert interpretation of architectural plans and professional building inspections.

If a defect lies within common property, the OC must act promptly to investigate and address it. Delays can significantly increase costs and risk and may expose the OC to claims from lot owners affected by the inaction.

Legal Pathways to Recovery

While Owners Corporations aren’t usually parties to the original building contracts, they can still take steps to hold the responsible parties accountable for any defective works. Section 134 of the Building Act 1993 (Vic) imposes a ten (10) year limitation period for claims arising from defective building work, starting from the date of the occupancy permit or final inspection certificate. This period applies regardless of when the defect becomes apparent.

Claims may be brought under:

• Statutory warranties under the Domestic Building Contracts Act 1995 (Vic), which require builders to complete work properly, safely, and in accordance with laws; and
• Common law causes of action, including negligence and nuisance, especially where defects cause damage or pose safety risks.

In complex matters, proceedings often involve multiple parties, such as builders, subcontractors, architects, engineers, surveyors, and certifiers.

Cladding Defects: Legal and Financial Considerations

Combustible cladding has been a significant focus of litigation and regulatory reform in Victoria. Many buildings require the removal and replacement of non-compliant external cladding, a process typically overseen by the OC in collaboration with building consultants, fire engineers, insurers, and the Victorian Building Authority (VBA).

Where eligible, OCs may receive financial assistance through the Victorian Government’s Cladding Rectification Program. However, even where such support is granted, funding gaps often remain, particularly for project management, consultancy fees, or works beyond the scope of the program. The OC remains responsible for managing delivery, ensuring compliance, and meeting ongoing legal obligations.

The Court of Appeal in State of Victoria v L.U. Simon Builders Pty Ltd [2025] VSCA 5 confirmed that a party (such as the State or an OC) may recover rectification costs from a builder even in the absence of a direct contractual relationship, where public safety concerns and statutory duties are involved. The case reinforced that legal liability may flow from broader statutory mechanisms, allowing OCs to pursue recovery from responsible parties long after completion of the project.

Funding these rectification projects presents a major financial challenge. Section 24 of the Owners Corporations Act 2006 (Vic) allows an OC to raise special fees or charges to cover extraordinary or unexpected expenses, including cladding-related defects. The type of resolution required (ordinary or special) depends on the tier of the OC and the amount relative to annual fees. However, no special resolution is required where the works are urgently necessary to ensure safety or prevent significant damage.

When special levies are insufficient or impractical, many OCs turn to strata finance arrangements, which provide upfront loan funding with repayments incorporated into future levies. These must be carefully considered and transparently disclosed and may also require special resolution approval under the OC’s rules.

Insurance may offer limited relief, such as for storm or fire damage, but latent defects, workmanship issues, or cladding failures are often excluded. Where no insurance coverage is available, OCs may need to pursue legal recovery, including through litigation, or dispute resolution via DBDRV or VCAT.

Funding Other Defect Rectification

Beyond cladding, funding rectification of other common defects such as water ingress, structural cracking, or service failures can place significant strain on OC finances.

As noted, Section 24 of the Owners Corporations Act 2006 (Vic) permits the levying of special fees to fund extraordinary works. The resolution required depends on the OC’s tier and the relative cost of the levy. Where immediate action is necessary to address a health or safety risk, a special resolution is not required, regardless of the cost involved.

Strict procedural compliance is essential. A levy that is improperly passed or inadequately documented may be subject to challenge or found to be unenforceable, potentially leaving the OC unable to recover costs from lot owners.

Strata finance providers may offer a practical alternative in urgent or large-scale cases, allowing works to proceed without delay. However, such arrangements should be evaluated carefully, particularly in light of repayment terms, disclosure requirements, and the need for owner approval.

Communication and Owner Engagement

Clear, timely, and transparent communication with lot owners is critical. Owners should be regularly updated on:

• The nature of the defects;
• Steps being taken to investigate and rectify them; and
• The financial implications, including any levies or borrowing.

Miscommunication can lead to distrust and internal disputes, especially when large financial commitments are proposed. Proactive engagement, supported by clear legal and technical advice, facilitates informed decision-making and can avoid escalation to litigation.

Conclusion

Managing building defects is one of the most demanding responsibilities an Owners Corporation may face. Victoria’s legislative framework offers a structured path for identifying liability and pursuing cost recovery, but it requires strict compliance with statutory duties, timelines, and procedural safeguards.

Successfully navigating defect rectification involves not just legal expertise, but also technical insight, financial planning, and stakeholder management. By acting early and strategically, OCs can meet their obligations while ensuring the long-term safety and value of the property for all owners.