You’ve found a townhouse, unit or apartment in your dream location. It seems like a peaceful block, there isn’t any abandoned junk lying on the footpath, and you’ve met a few of your neighbours who seem like they’d happily collect your mail when you’re away on holidays.
So, should you put in an offer?
When buying into a strata property, it’s important to do your research – not just about the property itself, but also about the strata scheme you’ll be part of. Also, make sure your information is up to date. In NSW, at least, strata rules and regulations recently changed.
Here are ten things to think about when buying into strata:
1. What is a strata property?
A strata property is a building, or collection of buildings, where individuals each own a small portion (a ‘lot’), but where there is also common property (e.g. foyers, driveways and gardens) which every owner shares ownership over. This shared ownership is managed through an owners corporation (also known as a body corporate, strata company or community association).
According to the Strata Community Association, strata title is an Australian innovation in property law that’s been copied around the world.
2. What will I own?
To find out exactly what you’ll own as part of your lot and what is common property, you’ll need to check your strata scheme. In an apartment building, for instance, you may own the floor coverings and the airspace within your apartment, but not the external walls, stairwell or garden. You are individually responsible for your lot, and anything that’s common property needs to be maintained by the owners corporation.
3. Who’s in charge?
There will be an owners corporation in charge of your strata scheme. The owners corporation usually hires a professional strata managing agent to look after the scheme day-to-day.
There may also be a strata committee which includes a group of owners elected at each annual general meeting, and who represent all the lot owners of the strata scheme. This group makes decisions on all matters which affect the owners corporation. This committee may also be called an executive committee, managing committee, committee of management, the committee, or council.
Under new rules, building managers, rental agents and anyone else who makes a living by working for the strata scheme can’t be elected to the strata committees unless they’re part of the owners corporation.
4. Can I renovate?
In the past, it was fairly tricky to even hammer a nail into a common property wall without getting a by-law approved. However, new regulations make renovations a little easier, as they are now classified as either cosmetic, minor or major. The first requires notifying the committee, the second only requires approval by a vote of the committee (not a general meeting) and the last – usually involving structural changes – still requires a special resolution at a general meeting.
5. Will I be forced to sell, or pay for things I don’t want?
Decisions are jointly made by the owners corporation and under new strata laws, 75% of owners can force the other 25 per cent to sell the strata block to developers for demolition and replacement with something new. Or, the same proportion of owners can also opt to extend the block with new apartments. So if you’re thinking of buying a strata property, Canstar recommends first asking the owners corporation if there are any upcoming capital works you should be aware of.
6. Are there ongoing costs?
When you own a strata property, you’re legally required to pay levies.
Every lot owner pays levies, although some may be larger than others, depending on ‘unit entitlements’. The amount of your unit entitlement varies according to a few things, including the size of your lot. The amount that you will need to pay (and when your levies are due) is determined at the annual general meeting (AGM) of your strata committee.
Your levies are distributed into two funds. There is an administrative fund for everyday expenses of the owners corporation, such as garden and grounds maintenance. And there’s a sinking fund, which includes money for the capital expenses of the body corporate – for example larger jobs like internal and external painting of the building.
When buying into strata, Canstar recommends asking to see the financials and minutes of the last few corporation meetings, as well as paying close attention to the quality and finishes of the overall property and what features it includes, as you’ll need to chip in for the cost of any overall maintenance.
7. Do I need to go to annual general meetings?
While AGMs aren’t compulsory, they offer you a great opportunity to stay up to date with what’s happening at your property, as well as to get to know the other lot owners. Every state and territory has different rules and structures for AGMs in terms of voting, quorums, and the chairing and adjournment of meetings. So before you buy, get familiar with the processes that are relevant to you.
8. How does insurance work?
While the building will be insured under the strata plan, you will need to insure your own contents under a separate plan.
9. What are by-laws and how do they work?
By-laws are a set of rules that all people living in a strata scheme must follow and are how strata living differs from owning your own home. By-laws are made in relation to issues such as parking, noise, smoke drift, and the keeping of pets. The rules regarding by-laws have recently changed, so it’s important to pay close attention to the by-laws that will affect you. All by-laws must be formally adopted by the owners corporation and legally registered.
10. What should I do before I buy?
Before buying into strata, it’s recommended you do the following:
• Carefully review the body corporate’s records, to get an insight into financial matters, past minutes and correspondence relating to the body corporate. • Check up on the finances and any upcoming works that might affect you. • Check what your levies will be, and ensure you can afford to pay these on top of your mortgage. • Look at the balance of the sinking and administrative funds and make sure there’s enough in each of them for any planned works, as you may be required to contribute to cater for any shortfall.
Note that if you’re buying off the plan, no strata scheme will yet be registered for the building but you still need to do your homework. Get a legal professional to look over the contract before signing or paying any deposit.
For more information on strata schemes and strata living, check with the relevant governing body in your state or territory:
