Firstly, what is strata? A strata scheme is a building or group of buildings that have been divided into 'lots' such as an apartment, townhouse or villa.
When purchasing a strata property, the contract for sale should include a copy of the strata plan. This is a legal requirement together along with a copy of the strata by-laws. The strata plan shows what your unit entitlement is for your lot.
In strata schemes, what you’re purchasing is the inside of an individual property, also called a ‘lot’ or ‘lot airspace’. You need to understand your unit entitlement as this determines your share of ownership in the common property and how much you need to pay to maintain it. It also affects your voting power in decisions that the Owners Corporation makes at their meetings.
When you buy a lot, you also share ownership of common property with other lot owners which may include shared gardens, external walls, swimming pools, roofs, wiring, driveways and stairwells. Most of what is outside your lot is called common property.
Strata properties are different to a typical freestanding property. The responsibilities that come with owning a strata property should also be considered before purchasing. Things to do before buying a strata property:
- Ensure you have read through the by-laws to check the community rules match your lifestyle;
- Obtain a strata report and a building inspection report. The strata report will reveal issues about the complex that you should consider which include the finances; whether the scheme is insured (and if insured for correct value); building defects and planned works; safety requirements; existing or pending legal matters; meeting notes and minutes and any evidence of disputes and how the scheme is run.
Your conveyancer will normally assist in organising a strata report for you before you enter into a binding contract. - Understand the difference of what makes up part of the common property and what is your individual lot.
- Any structural works you plan on completing that involve common property, will need permission from the Owners Corporation.
- If you have pets, most owners will need to seek Owners Corporation consent before a pet can live in your lot. The by-laws will refer to this.
It is important you also understand the roles within a strata scheme and the roles of the strata committee. Lot owners normally elect a committee (of current property owners) who play a significant role in managing the strata scheme and helping the Owners Corporation make decisions about the scheme.
You can expect that the strata committee will make decisions for things like:
- Expenditure for the day-to-day running of the scheme (e.g. hiring repairers, arranging insurance, etc.);
- Approving applications under a by-law of the scheme (e.g. approving renovation applications); and
- Issuing a notice to comply with a by-laws to anyone not following along.
Understanding their responsibilities and how decisions are made within the owners’ corporation is important for a harmonious living environment.
You should also understand what the strata levies are for the property and what they cover. All property owners must pay their levies into ‘funds’ that the owners corporation manages. Strata levies are fees that pay for management and upkeep of the property as a ‘whole’. Each strata scheme decides how often levies need to be paid however they are usually paid quarterly. The levies should be part of your budget when planning to buy a strata property as this will affect your monthly budgeting.
Most owners corporations will divvy the funds into groups. One will be the ‘administrative fund’ for day-to-day costs (e.g. gardens, maintenance, strata management fees) and another the ‘capital works fund’ for major building work (e.g. replacing roofing, lifts or fencing).
To work out how much money is needed for the capital works fund, each scheme must have a ‘10-year capital works plan’. It sets out what levies should be charged in the future, together with annual budgets.
To know if the levies are right for you and your property, consider the age and condition of the strata scheme to allow for future costs. Low levies could mean a steep rise in future fees. Special levies may be needed if there isn’t enough money to pay for large ‘capital works’ or unforeseen expenses.
If you want to know more regarding strata levies and what they cover you can find more at NSW Government – Strata Levies, finances and insurance.
Buying into strata you should be well informed before committing to any purchase within a scheme and really understand the legalities, financial obligations, expectations and expenses. We are here to assist in guiding you through making the right decision before committing to a strata unit and this will start with ordering a strata report and reviewing the contract. We are here to guide you through the process.