Considerations When Buying A Strata Unit

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 the law and terminology relating to strata schemes vary between jurisdictions. The information in this article relates to the law in New South Wales.

Understanding Strata Schemes

A strata scheme is a subdivision of a building into individual ‘lots’ and ‘common property’. A lot is the cubic space enclosed by the inner surface of the walls, the under surface of the ceiling and the upper surface of the floor of the unit. In some cases, the lot will also include  a balcony, terrace or courtyard. Common property is the whole of the building or property not comprised by a lot. This includes shared areas such as stairways, lifts, community gardens, driveways and swimming pools.

The legal title of a lot in a strata scheme is held outright by the owner who may sell, lease, or mortgage their property as desired. The owner also holds an interest in the common property with all other owners in the same strata scheme.

The Owners’ Corporation

The ‘owners corporation’ (also 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. A unit owner automatically becomes a member of the owners corporation after purchasing an individual lot.

The owners corporation manages the common property and assets of the strata title development for the owners mutual benefit. Its functions typically include:

• financial management and record keeping
• 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

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. A lot owner is bound by the by-laws which can be restrictive..

The functioning of the committee and the activities of its members play an important role in the enjoyment and daily operations of the strata complex. Committee members are generally elected annually and have significant responsibilities. Owners obtain voting rights according to their unit entitlements.

Resolutions passed by a committee affect other unit holders. It is similar (although not exactly the same as) to a board of directors managing a company.

Due Diligence

If you are considering purchasing a strata unit, you should obtain as much information as possible about the unit you propose buying and the building generally, including the common property, 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 should provide financial information about the strata scheme, details of levies, past and planned maintenance and expenditure, any building defects, 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 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 checked.

• 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. Sound transmission is generally worse in older buildings.

• By-laws: These regulate matters such as carrying out renovations, noise, parking, the keeping of pets – even where you hang your washing.

• Common property: Restrictions on the use or maintenance of common property may also impact individual unit owners. For example, you would need permission from the owners corporation before pruning trees that shade your balcony.

Financial Considerations

Current levies and potential future levies should be factored into the purchase price and ongoing costs of strata title living.

• Strata levies/fees: These regular payments cover building maintenance, 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: These are one-off payments for significant and generally unforeseen repairs or upgrades. However, assessing the likelihood of future special levies can be extremely difficult.

• Sinking fund/capital works fund: This fund reserves money for future major repairs, capital improvements and other expenses of a capital nature. A thorough review of the sinking fund forecast is recommended..

• Insurance: The owners corporation insures the building, but buyers should have 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 solicitor to assist with your investigations and help protect your interests is essential to ensure you make informed decisions.

This information is general in nature and does not constitute professional advice. If you or someone you know wants more information or needs help or advice, please contact Jackson O’Keeffe (02) 9923 2321 or email jokeeffe@somervillelegal.com.au .