June 04, 2011
When buying a townhouse, flat, apartment, villa or duplex, you need to consider the ownership title attached to that type of property. This is because the complex the dwelling resides within consists of not just one but many dwellings.
Strata title is the most common form of unit title in Australia. The essence of a strata title is that each unit owner in a building owns the ?air space encompassing that unit (but not the external walls, roof or floors, which are common property). What each owner does have claim over is normally the internal walls, and fixtures and fittings such as kitchen, carpets, drapes, etc.
A strata title can be registered and the owner can mortgage the property as if it were land.
There are certain principles that generally apply to strata titled properties, such as:
- You have an ownership share, along with all other unit holders, in the common property surrounding the unit (such as foyer, driveways, pool, grounds, common stairwells, etc) in proportion to your unit entitlement.
- While common property is collectively owned by all the registered owners of all the lots in a strata plan, the legal title to it is vested in the owners corporation, being a corporate body comprising and representing all the lot owners ('the Body Corporate').
- Each unit in the strata title has a unit entitlement, which governs the voting rights attached to the unit and the proportion of levies that the unit owner must pay based on the strata area purchased.
- There are rules which govern your use of the unit and the common property, referred to as the Owner's Corporation by-laws. These by-laws set down the rules of living in the complex. For example, some by-laws place restrictions on the behaviour of residents, for instance not allowing them to keep pets. In some instances the Body Corporate can vote to alter, add or delete by-laws.
- Each unit owner is a member of the Body Corporate and they contribute funds (via strata fees) to cover common expenses for items such as building maintenance and insurance. Usually an elected executive committee is formed to make most of the decisions regarding common property.
Before buying a townhouse or unit, identify what is common property and what property belongs to the unit. The strata plan will usually show the delineation of the common areas. This is important for reasons including:
- If you are a buyer, in addition to taking out insurance for the internal fittings, fixtures, furniture, etc, don?t forget to take out public liability insurance for any accident that could take place inside your unit.
- This is particularly important if you intend to rent out your property, as is landlord insurance.2.If you are a seller, keep your insurance in place until the settlement date, at which time you hand over the keys and the property is no longer your responsibility.
Body Corporate levies
You pay to the Body Corporate certain levies commonly known as ?strata fees?, and the amount depends on the size of your unit entitlement. There are commonly two levies that are payable on a periodic basis:
- An administrative budget covering annually recurring expenditure, (ie. insurance, annual repairs, lighting to common property, wages for maintenance people, etc); and,A sinking fund budget to cover long term expenditure (ie. painting of the building, repair/replacement of lifts, etc).
- This fund is designed to meet long term expenses when they occur. If adequate funding is not put into place early in the life of a building, whoever are the owners at the time when the expense is incurred by the Body Corporate will have to pay the expense.
- Ask how often strata fees are due to be paid; this could be monthly, quarterly or annually.
- If you?re interested to know where the money is being spent, as a unit owner, you have a right to attend the Body Corporate meetings. You should also receive minutes from each meeting, whether you attend or not.
Unit buyers beware
When considering purchasing a strata-titled property, it is vital to understand your rights and obligations as part of the Body Corporate. Strata fees vary considerably depending on the age of the building, facilities, location and past management practices.
Common traps and pitfalls include:
- High ongoing Body Corporate fees
- Bans on pets
- Restrictions on external appearance (including balcony and window treatments)
- Failure to budget for future repairs or maintenance (sinking fund)
- Disproportionate number of renters to owner occupiers (more renters can mean more wear and tear in and around common areas, which may result in higher Body Corporate fees to cover ongoing maintenance and repairs)
- Unrepresentative Body Corporate (where one or more owners dominate Body Corporate decision making).
Before you purchase a strata titled property, it is important to do your research and know the right questions to ask.
The Body Corporate is required by law to keep a written record of its various dealings. This includes its budgets and forecasts of expenditure, correspondence, insurance details, particulars of the owners and also the minutes of meetings with its members. Keep in mind there may be a fee for viewing such records.
These records read like a ?diary? and can tell you very quickly whether the strata complex has experienced trouble between the owners or has other problems. Take a look at the correspondence file to see if there are any disputes or legal actions. The minutes of the Annual General Meetings are particularly helpful in this regard.
By looking at the records before you sign, you can avoid making a regretful decision. For instance if there is a long history of bickering, disputes or poor management of the complex or even large expenditures coming up or litigation, then you may not want to buy into this.
Be aware that running costs of high-end apartments can be considerable, especially if they include upkeep of elevators, security systems or staff and swimming pools. Do not fall into the trap of thinking that a building will not need repairs and upgrades, either now or in the future.
Be sure that you know exactly what your strata title includes. A surveyor?s reports will clarify the ownership of car spaces, garages and storage areas.
Finally, before signing the property purchase contract, take the time to speak to your future neighbours about the building, the type of residents and the Body Corporate managers. Well-managed and pleasant strata titled buildings should sell themselves.
Before buying into a strata complex, do a search to see if everything is fine in the Body Corporate?s records.?
A checklist of things to look out for may include:
- Are all necessary insurances in place and adequate?
- How much money is being held in the administrative and sinking funds, and is this adequate?
- Are current unit owners happy with the Body Corporate and the people living within the complex?
- Are there any matters raised by the Body Corporate, past and present (eg. litigation, special levies, etc.)?