# Clarification on Transfer of Common Areas



## lantus (16 Oct 2014)

This is a post for information only regarding some queries that have arisen with several OMCs over the past months. 

In particular - *The legal standing and rights of an OMC to operate prior to the transfer of common areas.*

Why is this important?
The normal process in most cases envisaged the developer providing the maintenance through service fee collections and then once the transfer of common areas takes place the OMC would take over. Most leases specify this distinction.

Why it ISNT a problem though....
The reality is that unless the lease specifically prohibits the OMC running the estate they are legally entitled to do so as the 'beneficial owner of the common areas'. They can collect fee's, undertake debt collection and enforce the lease as they see fit. Many developers use the OMC prior to the transfer anyway to undertake maintenance as they are the directors from its inception.

Estates in receivership
This is even more important when a developer is in receivership. In that situation there is no developer and the rights of the receiver are 'minimal'. They have no obligations towards running the estate, only in selling the assets. The residents if not already should ensure they use their OMC to run the estate, provide maintenance and enforce lease provisions.

Expecting the receiver to do this would be 'folly'.

Directors have the full backing of company law and assuming they act in good faith would be considered no differently to a development where the transfer has completed.

Things to note
The block insurance should note that the transfer has not yet taken place to ensure clarity and compliance.



Any questions?


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## Leo (17 Oct 2014)

Good post Lantus.


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## mtp (24 Oct 2014)

lantus said:


> This is a post for information only regarding some queries that have arisen with several OMCs over the past months.
> 
> In particular - *The legal standing and rights of an OMC to operate prior to the transfer of common areas.*
> 
> ...


 
The is no question at all arising about the functioning of an OMC The question is WHAT its functions are? The memo of association that will tell u the main object of the company - take over the interest of the developer in the estate.See post of Danob a purchaser of a MUD Apartment whose solicitor is going back to the bank to let the bank know that the common areas have not been transferred.  The function is collection of service carges to - acquire the interest of the developer in the lands ? Danob required a folio showing the OMC as owner of the common areas. Vendor did not have it. And u are right u cant expect receiver help.


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## jambo1979 (13 Nov 2014)

@ Lantus - In cases where the common areas of an estate have not been transferred to the OMC where would members stand with reference to their service charges being used to maintain and run the common areas ? i.e should this be the responsibility of the developer until transfer has taken place ?


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## lantus (13 Nov 2014)

The answer is 'it depends' and will be subject to your specific contract lease documents. Sometimes the developer is responsible up until the transfer to pay from their own pocket.  Often they will levy a service fee but this goes through the developers bank account and not the OMC. This makes them exempt from the MUD act. (You wont be getting asked to their AGM), but you may still hold an OMC AGM in the interim but it would not discuss anything relating to fees. Its more of a holding company at that stage.

Usually the developer uses the OMC structure to levy fees and everything goes through the company's accounts prior to the transfer.

In a 'normal' situation the developer remains in control of the OMC until the transfer. However, in practice and reality the building downturn forced many developers into receivership or bust very quickly and there was a void that needed to be filled. Residents took control of their OMC to ensure vital services were maintained and delivered. Some were resident run even where there was a functioning developer and some articles prevent members from becoming directors until the transfer has completed.

However, in all cases, even before the transfer the OMC remains the beneficial owner even before they are the legal owner. Unless there is a very good reason why the company should not be levying fees there is no legal reason why the OMC cannot set and collect fees to maintain the estate. There is no legal reason that prevents members being contractually obligated to pay those fees and subject to debt recovery if they don't ay them

The alternate question is what would happen if the OMC did not collect fees? Would the developer spring into action to save you all or would it be left to the residents to resolve. If there is no developer then its the members who need to sort it out.


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## mtp (15 Nov 2014)

jambo1979 said:


> @ Lantus - In cases where the common areas of an estate have not been transferred to the OMC where would members stand with reference to their service charges being used to maintain and run the common areas ? i.e should this be the responsibility of the developer until transfer has taken place ?


 
The answer to your question is in S17 of the MUD Act. Annual meeting of member to approve budget and set s charge and what it is used for, 

If covenant in lease are the developer is liable until common areas transferred to the OMC then OMC is breaching lease by collecting any s charges to maintain lands. The lease is applies only to the parties to it - ie it is between Developer , OMC with Members.

So the forum to correct any such error is the Annual Meeting under S17 
Only MEMBERS can vote and approve that budget. Not Board.  Receiver is not a member and has no voting rights. 

The forum also opportunity for member and OMC where bank and receiver benefiting by s charge going to maintain lands and  pay insurance premium for commercial premises to invite receiver to enter into negotiation with OMC solicitors to agree lands and transfer them to the OMC AND where the lease is express that OMC will only maintain when common areas transferred board should also so advise the meeting - the covenants in lease are only between parties to it. 

Not to do with any receiver.


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