How much do you know about buying a unit in a strata scheme? Before purchasing a strata title property you should be aware of the following issues:
A strata scheme is a building or collection of buildings, where individuals each own a small portion (a lot) but where there is also common property (eg. external walls, windows, roof, driveways etc) which every owner shares ownership over.
Strata schemes are, in effect, small communities where the activities and attitudes of residents can have a significant impact on the satisfaction and enjoyment of others. It is important for people to be aware of the responsibilities and obligations when owning a property in a strata scheme.
One of the major differences between owning a house and owning a unit (known as a ‘lot’) in a strata scheme, is that the external walls, the floor and roof do not usually belong to the lot owner. These areas are usually common property and the maintenance and repair of these parts of the building is usually the responsibility of the owners corporation. As it is common property, the lot owner is not able, without permission of the owners corporation, to alter or renovate these areas, or install services such as cable television. As a further example, a lot owner is not allowed to put an additional window in a common property wall without obtaining owners corporation approval.
Before purchasing a strata lot, it is essential that the prospective buyer is clear on where the common property boundaries are. This information is available from the strata plan, which shows the layout of the strata scheme and the common property details. Close attention should be paid to items such as sliding doors leading to balconies, garage doors and balcony railings, as strata plans may differ on whether these items are part of the common property or not.
It is recommended that expert advice be obtained if there is any uncertainty over common property boundaries. For a definitive answer on what forms common property in your strata scheme, you should refer to the strata plan for your individual strata scheme. A copy of the strata plan may be obtained from Land and Property Information NSW (formerly the Land Titles Office) at the corner of Macquarie Street and Prince Alfred Road Sydney NSW, or on 9228 6798.
In most strata schemes, the lot owner owns the inside of the unit but not the main structure of the building. Usually the four main walls, the ceiling, roof and the floor are common property. The internal walls within the lot (eg. the wall between the kitchen and loungeroom), floor coverings such as carpet and fixtures such as baths, toilet bowls and benchtops are all the property of the lot owner. While it is sometimes a hard concept to envisage, a lot owner effectively owns the airspace (and anything included in the airspace) inside the boundary walls, floor and ceiling of the lot.
Airspace can also extend to balconies and courtyards. You should get proper advice about ownership of such things as a tree in the courtyard or responsibility to maintain a pergola covering a balcony or courtyard. They could be in your airspace and therefore, would be maintained at your cost.
The owners corporation is the body made up by all the owners in the strata scheme. The owners corporation has an executive committee which can make many of the decisions on its behalf.
The role of the owners corporation is to look after the business of the strata scheme. To carry out this role, the owners corporation must set up and keep an administrative fund (for day-to-day operational expenses) and a sinking fund (for long-term future expenditure). The owners corporation must estimate how much money is needed each year for the funds to cover all the expenses and needs of the strata scheme. The levy amount to be paid by owners is decided at each annual general meeting by a majority vote. All levies must be worked out based on the unit entitlements of each lot. Levies are usually paid every 3 months.
An owners corporation has the same type of expenditure as a conventional householder. There are council rates, water and electricity charges for common areas, building and public liability insurance and repairs and maintenance of common areas. In a strata scheme, there is also additional expenditure such as workers compensation insurance, building valuations, the resolution of any disputes which may arise within the scheme and any other matters related to the running of the scheme.
Lot owners must be aware that they will be required to make regular contributions to the owners corporation to cover the maintenance and administration of the strata scheme. Owners should pay close attention to the quality and finishes of a building as everything the scheme has to offer must be maintained eg. swimming pools, lifts, tennis courts, saunas etc.
While it is not compulsory for any lot owner to attend owners corporation meetings, a strata scheme operates better if those concerned take an interest in its affairs. It is helpful if people are willing to make themselves available for election to the executive committee. There would usually be several meetings of the owners corporation each year, although the annual general meeting (when levies are set for the coming year and the executive committee is elected) is the only meeting required by law. The executive committee would usually meet more often than the full owners corporation, as there would normally be a number of issues to deal with during the year.
By-laws are a set of rules that all people living in a strata scheme must follow. By-laws are made in relation to issues such as safety and security measures, floor coverings, the keeping of pets etc.
You should get professional advice about the complexities involved in buying property. If you are interested in buying a strata unit, it is essential you look at the records of the owners corporation and know as much as you can about the maintenance of the building.
Particularly, you should consider how much it may cost and whether there are signs that money may need to be spent soon. Sometimes your solicitor will arrange this for you, but not always. There are companies which specialise in inspecting the books and they know what to look for. You can inspect the records yourself (upon payment of the necessary fees) and the owners corporation must make these records available:
If you are an owner, or you have an owner's, mortgagee's or covenant chargee's written permission, you may write to the owners corporation and ask for a section 109 certificate. The Treasurer of the owners corporation must give the certificate under owners corporation seal. The certificate must be on the set form used in the Strata Scheme Management Regulation 2010 - Schedule 8. There is a fee payable.
A Section 109 certificate will give information about the strata scheme including:
If a levy is outstanding before the certificate is given and it is not shown on the certificate, the purchaser is not responsible for the payment.
Sometimes strata units are advertised for sale even before the building has been constructed. The design of the building and sketches of its final appearance may be included in advertising material well before occupation is possible. Purchasing a strata unit under these circumstances is commonly known as 'buying off the plan'.
Usually a contract to purchase is signed, but the date for completion of the contract will not be until the building is completed and the strata plan is registered. The purchaser usually pays a deposit (perhaps ten percent of the agreed price of the unit) and the balance is paid when the contract is 'settled' upon the building's completion. There may be substantial demand for apartment accommodation in popular areas of NSW and it is sometimes easy for developers to market such strata units months before building work is completed.
There are a number of issues that people need to be aware of when buying off the plan, as they may effectively be entering into contractual arrangements without the customary benefit of being able to view and assess the finished product.
The conditions of the contract should be closely checked. Legal advice should be obtained regarding the benefits or restrictions provided by the terms of the contract. For example, consideration should be given to whether there are any penalties for withdrawing from the contract. Other questions you might need to ask are:
Ordinarily a developer must not enter into a contract for the sale of land on which residential building work (which includes the construction of strata units) is to be done, on the developer's behalf, unless a certificate is attached to the contract of sale showing that the builder has taken out the necessary insurance.
The insurance is required to insure the purchaser against:
However, a developer who sells a strata unit 'off the plan' is exempt from attaching a certificate of insurance to the sale contract, if the building work has not yet commenced and the contract:
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