Buying into a strata scheme

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:

 

What is a strata scheme?

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.

 

What would I actually own 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.

 

Owners corporation and executive committee

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.

 

What are levies?

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.

 

Are there any meetings I would have to attend?

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.

 

What are the by-laws/lifestyle restrictions?

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.

 

What should I do before signing a contract?

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:

  • the strata roll (shows: who owns each unit, mortgagees and others who have an interest in lots, general information about the strata scheme, the name of the managing agent, insurance details, the by-laws and the unit entitlements for the scheme and each lot)
  • general records, such as notices served about disputes or required by legislation, orders, minutes of meetings, accounting records, financial statements, correspondence received and sent, notices of meetings, details of proxies, voting papers
  • plans, specifications, certificates, diagrams and other documents if supplied by the original builder at the first annual general meeting
  • the certificate of title for the common property
  • the last financial statements
  • current insurance policies and the receipt for the last premium paid
  • other records held by the owners corporation, and
  • records or books of account kept by a strata managing agent.