Understanding Strata Schemes Part 1 – What you should know

The great Aussie dream of owning your own ¼ acre block with a beautiful brick house and white picket fence has faded into a dim memory and for most first homebuyers that dream is out of the question.

In fact, in the next two decades it is predicated that more people will be living in strata properties than in free standing houses.

According to Grattan Institute research “There are currently more than 1.5 million people living in strata buildings in NSW and in the next two decades will see this number rise by another million.”

To accommodate this trend, newly constructed apartment buildings are evolving to offer more long-term comfort to residents.

Modern complexes include function rooms, sports facilities, soundproof music rooms and other innovative features that are rarely available to owners of freestanding houses.

Because of the growing demand for Strata accommodation and the increase of first home buyers and investors new to the strata concept we are publishing a 2 part blog on Strata Schemes; this week is Part 1 “What you should know”; next week is Part 2 “Strata Levies”.

What is a strata title?

Strata title allows individual ownership of part of a property called a ‘lot’ generally an apartment or townhouse, combined with shared ownership in the remainder called ‘Common Property’ through a legal entity called (depending on your state or territory or residence and the type of scheme) ‘the owners corporation’, ‘strata company’ or ‘community association’.Keys3

Common Property includes but not limited to: foyers, lifts, driveways, gardens, swimming pools, gyms, and everything else that is part of the complex.

Strata Schemes or the Strata Title concept for handling the legal ownership of a ‘portion’ of a building or structure was only introduced into Australia in 1961. 

There are now more than 270,000 such schemes encompassing more than two million individual lots across Australia.  An increasing number of commercial and retail properties are also Strata titled.

The NSW Government is currently reforming NSW strata law.

Being an owner in a strata scheme

  • Your ownership includes your individual unit or apartment as well as sharing ownership and responsibility for the Common Property.
  • You are automatically a member of the Owners Corporation, which has responsibility for the Common Property.
  • Every 3 months you have to contribute to the cost of running the building through paying Quarterly Strata Levies (see below), in addition to rates and taxes.
  • Compared to owning a freestanding house, there will be lifestyle restrictions in a strata scheme, e.g. there are rules (by-laws) that may affect you doing renovations to your unit; where you can and cannot park your car; noise control; where you can dry washing; whether you can or cannot keep pets.
  • Each owner has principle obligations in relation to their lot and the common property and if they are an investor to ensure compliance with the scheme’s by-laws is a condition of the tenancy agreement

The owners corporation

The Owners Corporation is the body made up of all the owners in the strata scheme. It has the responsibility for:

  • Maintaining and repairing the common property of the strata scheme
    • Managing the finances of the strata schemeFree_property_sales_report
    • Taking out insurance for the strata scheme
    • Keeping records and accounts for the strata scheme
    • Administering the by–laws for the strata scheme.

The Owners Corporation hold regular meetings and at the annual general meeting elect an Executive Committee to oversee day-to-day issues and they generally liaise closely with the appointed Strata Manager (usually an external Strata Management Company) and together they work as a team to ensure the smooth running of the scheme.

Legislation requires that certain records and accounts be kept (and maintained) by the Owners Corporation. Details of everything you need to know regarding those responsibilities can be found in the NSW Strata Schemes Management Act 1996.

Strata levies*

There are three types of Strata Levies:

  1. Administrative Fund Levies: to cover the day-to-day running expenses.
  2. Sinking Fund Levies: for long-term repairs and maintenance.
  3. Special Levies: for all those unexpected expenses where no funds were allocated.

We will cover Strata Levies in our next blog.

For a more definitive explanation of “Buying into a Strata Scheme” visit the Dept Fair Trading website.

My comments

More and more Sydneysiders are choosing apartment living and the number of Strata developments being built are increasing to cope with the demand.

house fall price

There are old Strata buildings dating back to when Strata Schemes where introduced; and every type of Strata complex built over the past 60 years up to the very new strata developments built in the past 5 years and in progress of being built now.

Every Strata offers different features and facilities and each come with their own potential problems.

Before you make the decision to buy into a Strata Scheme ensure you engage a reputable Conveyancer with strata experience to guide and assist you to understand the strata development your are considering as there can be pitfalls you may not be aware of that could end up being very expensive, especially in relation to the age of a strata building and the Strata Levies Sinking Fund.

It is not uncommon for a new owner after buying their ‘dream unit’ and being stretched to the limit financially to be hit with a very large special levy shortly after settlement to meet the costs of a sudden, major capital repair because the Owners Corporation had insufficient funds in the Sinking Fund to cover the expense



Want more of this type of information?


Garth Brown

About

Garth Brown is the Founder and Director of Brown and Brown Conveyancers one of Sydney’s leading Conveyancing Firms. With 20 years experience as a practicing Conveyancer he has assisted hundreds of Clients to navigate through the maze of conveyancing issues when buying and selling property. Visit www.conveyancers.net.au/


'Understanding Strata Schemes Part 1 – What you should know' have 2 comments

  1. September 6, 2014 @ 6:53 am Ray

    As for investing in such a property the investor has to be aware that they have to not only put money into the strata funds but also spend time to attend these strata meetings.I recently considered buying a unit it would have been positively geared but after speaking with a real estate agent that I know he explained to me about how strata works.In the end I decided that it wasn’t for me because of the restrictions that come with strata.

    Reply

    • September 6, 2014 @ 8:53 am Michael Yardney

      Thanks for your comment Ray
      I’m not sure what restrictions you’re talking about.
      Being part of a complex that has a body corporate does not make or break a good investment. It’s the location and type of property that’s makes a good investment.
      I’ve seen many apartments outperform poorly located houses, with regards to capital and rental growth.

      However I agree with you that it’s important to know what your rights and obligations are if you’re buying into a complex with other owners

      Reply


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