Strata living has become a cornerstone of urban life, offering convenience and potentially more affordable housing options for many Australians. Living in a strata scheme can offer benefits such as shared amenities and a sense of belonging within a community. However, owning a strata unit is different from owning a freestanding house. It involves shared responsibilities and collective contributions to ensure the upkeep of community spaces. Due diligence and careful consideration are essential to ensure potential buyers can move forward confidently with a decision to purchase a strata unit.
This article outlines some key considerations to help buyers investigate the proposed purchase of a strata unit. The information does not constitute legal advice which should be sought from an experienced professional when considering any property transaction. It is also important to note that strata schemes, terminology and regulations may vary between jurisdictions. This article focuses on strata title property in NSW.
Understanding Strata Schemes
A strata scheme is a property development that is divided into individual ‘strata lots’ and ‘common property’. A ‘strata lot’ is defined by the cubic airspace and interior surfaces of the walls, ceilings, and floor – usually the inside of the unit or apartment, and can include any balcony. ‘Common property’ includes all shared areas in the strata scheme such as foyers, stairways, lifts, the structure of the building itself, communal gardens, driveways and swimming pools.
The legal title of a strata lot in a strata scheme is held outright by the owner who may sell, lease or mortgage their property as desired. Each strata lot owner also owns the common property in shares equal to its unit entitlement.
The Owners’ Corporation
The ‘owners’ corporation’ (previously known as a ‘body corporate’) is a legal entity comprising the collective owners of a strata title complex. The owners’ corporation is governed by regulations in each relevant jurisdiction – in NSW it is the Strata Schemes Management Act 2015. A strata lot owner automatically becomes a member of the owners’ corporation after purchasing an individual strata lot.
The owners’ corporation manages the common property and assets of the strata scheme for the owners’ mutual benefit. Its functions typically include:
• financial management and record-keeping including annual general meetings
• organising public risk and building insurance
• administering service and facilities management contracts
• managing and arranging for repairs and maintenance of common property
• appointing managing agents
• implementing and enforcing by-laws for the development
Strata Living
An important feature of strata living is that in essence, an owner is a member of a small community. The overall culture and community within the building can impact the experience of strata living. As a member of the owners’ corporation, a strata lot owner is bound by the by-laws (i.e. the rules of the strata scheme) which can be restrictive and must be carefully considered to ensure that they will complement a prospective purchaser’s lifestyle.
Each strata scheme may also elect a ‘strata committee’ (previously known as the executive committee) to assist the owners corporation with the management of the strata scheme. At each annual general meeting, strata lot owners may be elected as members of the strata committee.
The functioning of the strata committee and the activities of its members play an important role in the enjoyment and daily operations of the strata scheme. Strata committee members are elected annually (at the AGM) and have significant responsibilities. The owners corporation may delegate certain day-to-day roles and tasks to the strata committee (including reviewing applications for minor renovations). Owners obtain voting rights according to their unit entitlements.
Resolutions passed by a strata committee, while governed by regulations, affect other unit holders. As with all committees, potential conflicts can arise.
Due Diligence
If you are considering investing in a strata unit, you should obtain as much information as possible about the strata lot you propose buying, the common property, and the management of the scheme, including its financial management. These inquiries are in addition to the usual, but essential, reports on the physical structure and condition of the building.
Pre-purchase strata inspection reports provide essential information about the financial status of the strata scheme (if there is sufficient money in the Administrative Fund and Capital Works Fund (previously known as the sinking fund)), any building defects, litigation, levies, past and planned maintenance and expenditure, insurance, and recent by-laws. Reviewing past meeting minutes can reveal potential issues, disputes, and ongoing projects.
A full contract review by an experienced professional to explain conditions and identify the areas included in a specific strata lot and those that are common property is also essential.
Practical Considerations
- Building and amenities: In addition to the unit, it is important to check the condition, appearance and quality of the entire building and amenities. If the building is rundown and needs repairs, any planned work will come at an extra cost to the owners. Pools, gyms, and other shared amenities should be assessed for condition and usage.
- Parking and storage: The availability and allocation of parking and storage spaces should be investigated as well as any provision for or restrictions on visitor parking.
- Noise and privacy: Potential noise from neighbours and common areas should be considered.
- By-laws: These regulate matters such as carrying out renovations, noise, parking, the keeping of pets – even where you hang your washing. By-laws often restrict the type of renovations that can be carried out to a unit which can impact your future plans.
- Common property: Restrictions on the use or maintenance of common property may also impact individual unit owners. For example, you may need permission from the owners’ corporation before pruning trees that shade your balcony.
Financial Considerations
Current levies, as well as potential future levies should be factored into the purchase price and ongoing costs of strata title living.
- Strata levies/fees: These regular quarterly payments cover the day to day expenses of the operation of the strata scheme including general building maintenance, electricity, insurance and administration. Potential buyers should carefully review financial statements to understand how levies are calculated and the impact of potential future increases.
- Special levies: When there is insufficient funds in the Capital Works Fund to cover the cost, then the strata scheme may raise a special levy to fund the cost. These are one-off payments for significant repairs or upgrades. Assessing the likelihood of future special levies is essential to avoid unexpected financial burdens. A strata lot owner will contribute to the cost of the special levy based on its unit entitlement.
- Sinking fund/capital works fund: This fund reserves money for long term maintenance and future major repairs as per a Capital Works Fund Plan. A thorough review of the capital works fund plan is essential to determine its adequacy.
- Insurance: The owners corporation insures the structure of the building and all common property, but buyers should also have personal contents insurance.
Conclusion
The demand for strata title properties has increased significantly over the past years and strata living can offer a convenient, contemporary lifestyle with many benefits. With informed decision-making, purchasing a strata unit can be a positive step towards a fulfilling lifestyle.
Conducting thorough due diligence and retaining the services of an experienced strata professional to assist with your investigations and help protect your interests is essential to ensure you make informed decisions.
If you or someone you know wants more information or needs help or advice on buying in a strata title property, please call 02 8999 1080 or email [email protected].