Before purchasing a strata title property, be aware of the following issues:
A strata scheme is a building or collection of buildings that has been divided into ‘lots’. Lots can be individual units/apartments, townhouses or houses. When a person buys a lot, they own the individual lot and also share the ownership of common property with other lot owners. Common property generally includes things like gardens, external walls, roofs, driveways and stairwells.
Strata living can provide a friendly community-style environment but differs from living in a freestanding house. Some activities may be more restricted – for example, where you can park your car or how you can renovate your lot. It is important for people to be aware of the responsibilities and obligations.
The property you are looking at may actually be within a community scheme. Generally, community schemes support a variety of different land uses (houses, apartments, gym, shops, golf course) within the one complex. Community schemes operate in much the same way as strata schemes, having lot owners, common property, owners corporations and by-laws.
One major difference between owning a house and a unit in a strata scheme (or ‘lot’) is that the external walls, the floor and roof do not usually belong to the lot owner. These areas are usually common property, which means that the maintenance and repair of these parts of the building are the responsibility of the owners corporation. As it is common property, the lot owner cannot alter or renovate these areas without permission from the owners corporation. Lot owners may need permission to do things such as install services (eg. cable television, phone or internet), knock down walls or replace locks on doors or windows.
Before purchasing a strata lot, the prospective buyer should be clear on the common property boundaries. For a definitive answer on the common property, refer to the strata plan for your individual strata scheme from Land and Property Information NSW. The strata plan shows the layout of the strata scheme and the common property details. Pay close attention to items such as sliding doors leading to balconies, garage doors and balcony railings, as strata plans may differ on whether these are common property. You can also obtain expert advice if you are uncertain about the common property boundaries.
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 (e.g. the wall between the kitchen and lounge room), floor coverings such as carpet and fixtures such as baths, toilet bowls and bench tops are all the property of the lot owner. Effectively, a lot owner generally 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 the responsibility to maintain a pergola covering a balcony or courtyard. They could be in your airspace and, therefore, would be maintained at your cost. You should also check whether things like car spaces or gardens are part of your lot. If they are, you will be responsible for their maintenance.
The owners corporation is an incorporated body made up by all the owners in the strata scheme. The owners corporation also has an executive committee able to make certain decisions on its behalf.
The role of the owners corporation is to look after the business of the strata scheme. They 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 (AGM) 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 can also be additional costs such as workers compensation insurance, building valuations, and the resolution of any disputes arising within the scheme.
Lot owners need 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.
On occasion, lot owners may be asked to pay a ‘special levy’ to raise funds for some expense. This is a one-off payment that is usually made for major renovation or repair work. Special levies can only be made by agreement within the owners corporation.
It is not compulsory for a lot owner to attend owners corporation meetings. However, a strata scheme operates better if those concerned take an interest in its affairs. It helps if people are willing to make themselves available for election to the executive committee. The owners corporation usually meets several times each year, although the AGM (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 several issues to deal with during the year.
The owners corporation can manage the strata scheme itself, or it can engage a strata managing agent to work on behalf of all owners to help manage the scheme. If it engages a strata managing agent, the owners corporation enters into a contract with the agent, which outlines their duties and responsibilities. The owners corporation has the power to instruct the agent to do certain works and if necessary, they can overrule the agent.
The appointment of a managing agent can only be decided by a majority vote at a general meeting. Only a person who holds a strata managing agent’s license under the Property Stock and Business Agents Act 2002 can be appointed.
Agents can carry out some or all of the functions, duties or powers of the owners corporation including administrative matters such as calling meetings and collecting levies. They should also give advice and guidance about legislative requirements.
By-laws are a set of rules that all people living in a strata scheme must follow. By-laws are made on issues such as safety and security measures, floor coverings, pets etc. Strata schemes can adopt model by-laws that are set out in the Strata Schemes Management Act 1996, or they can make their own.
Gain professional advice about the complexities involved in buying a strata unit. Look at the records of the owners corporation. Know as much as you can about the maintenance of the building and the related costs, and look for any signs that money may need to be spent soon.
There are companies that specialise in inspecting the books. Sometimes your solicitor will arrange this for you. You can also inspect the books yourself. The owners corporation must make their records available following payment of the necessary fees (usually done through the strata manager). You can access the following records:
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 the 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 well before occupation is possible. Buying such a strata unit is known as 'buying off the plan'.
Usually a contract of sale 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 buyer usually pays a deposit (typically 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 are several issues to be aware of when buying off the plan, as you may be entering into a contract without having first seen and assessed the finished product. Find out more at our Buying off the plan page on the Fair Trading website.
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