If you’re buying or renting a property, you’ve undoubtedly heard of the term ‘strata title’, but what exactly is it and what are the pros and cons of owning a strata title property?

What is a strata title property?

When you purchase a house, you purchase the land title or the entire block of land. However, if you buy a property that is part of a strata title, you not only own the unit, apartment or townhouse (called the lot), but you also share the ownership of what’s called ‘common property’ which includes areas like foyers, lifts, fences, gardens and swimming pools. These areas are the shared responsibility of all property owners of the building.

Strata title properties come in a variety of forms, with residential apartments and townhouses the most common, but they also exist in commercial property, serviced apartments, retirement villages and retail.

According to Canstar “there are more than 270,000 strata schemes across Australia, making up over 2 million lots”. In other words, strata title properties represent a significant part of our real estate landscape.

What are my responsibilities if I own a property with a strata title?

Understanding what your responsibilities are when you buy a property with a strata title is important. As a lot owner you are responsible for:

• Abiding by the laws as set out by your body corporate
• You will be invited to attend the annual general meeting. Attendance isn’t compulsory but it is an important forum to learn about larger scale issues such as renovations, repairs and finance matters
• Notifying the body corporate if you sell your property, or if your tenants change
• Paying your body corporate levies on time. These cover your contribution to the maintenance and repair costs. Keep in mind these fees may increase over time.

What is a body corporate or owners corporation and what is their role?

An owner’s corporation or body corporate in a strata building maintains the common property.  This is a legal entity and is usually made up of all lot owners (not tenants). In some cases where the property has a mix of commercial and residential lots, it may have multiple committees to divide responsibilities and costs. In many cases, the owner’s corporation may vote for lot owners to form a committee and give them specific responsibilities to make decisions.

An owner’s corporation can make rules which are binding on the owners and tenants regarding the use of common property. They can also introduce by-laws that suit the residents of the strata scheme. A by-law must not be too harsh or oppressive and may include allowing pets or sub-letting, for example. Any by-laws must be formally adopted by the owner’s corporation and legally registered.

According Strata Data, the body corporate is responsible for:

• Upholding the rules and by laws covering the property
• Managing insurance or the building and common property areas and managing the common funds or fees paid by the lot owners
• Maintaining and repairing the common property
• Keeping records, such as budgets, financial records, minutes of meetings and a register of lot owners and committee members and they must make this available to owners if requested
• Handling complaints or disputes between individual lot owners or tenants on issues such as noise, carparking, and anti-social behaviour and enforcing by-laws.

What are strata levies and how are they determined?

Strata levies are collected on behalf of the owner’s corporation quarterly with the amount calculated and agreed on at the Annual General Meeting. The finances are used for the management and operation of the building with money put aside for ongoing maintenance and repairs. It is in the interest of all owners to keep the building well maintained for increased capital gain and enjoyment of the complex.

Each owner is required to pay their fees and face interest penalties if they remain unpaid within one month of the due date. If an owner has outstanding levies when selling their property, the fees will be deducted from the final settlement amount.

What are the benefits of buying into strata title?

When working out whether a strata title property is right for you, you need to consider your responsibilities as a lot owner. Here is a look at some of the key advantages to owning a property with a strata title.

• Living in a strata run building means the common area maintenance is managed by the owner’s corporation and you are normally only responsible for directly managing your own lot. The benefit of this is you can head off on holiday knowing the strata manager is responsible for any issues that might occur while you’re away. Each quarter you pay a strata levy that is then used to manage the maintenance of the common areas.
• Affordability and location are other reasons for buying a strata property. First homeowners or older people have the option to purchase a property in an area they want to live, that would otherwise be unaffordable if they were buying a house.
• Modern strata buildings often include facilities such as a swimming pool, gym, landscaped gardens and outdoor entertaining areas. Certainly, luxuries a most first homeowners couldn’t expect when buying a house and it’s all regularly maintained.
• People with little or no family can become part of a community in a strata building and can get actively involved in the running of the place. Residents who get to know their neighbours and socialise, can create strong and co-ordinated councils that manage the property. Having neighbours close by and coming and going at different hours is a great security measure for everyone.

What are the disadvantages of buying into strata title?

• The number one disadvantage most property owners’ wince at are strata surcharges or strata levies associated with the purchase of the property. These charges are generally paid quarterly and spent on the maintenance of the building, its facilities and surrounds. So, a larger block with more features such as pools and gyms will require higher regular payments.
• Council rates are charged for each unit, rather than the building as a whole so the property owner has to pay these separate from any strata levies.
• If you are in a complex where the owners corporation is ineffective, it is a frustrating and time-consuming process to have any major improvements or changes made.
• Depending on the buildings strata by-laws you may be restricted by where you park, whether you’re allowed pets, a BBQ on your balcony and what changes you can make to your property
• In some cases, it can take a long time for owner’s corporations to make decisions and requests can be rejected
• The value of your property is directly linked to the value of others in the complex so there may be a limit to how much value you can add through home improvements and renovations

What is the difference between a Strata vs Torrens title property?

Torrens title means you are the sole owner of your property and can choose to make any changes or maintain the property at a time that suits you. With strata, any maintenance to common property is outsourced by the owner’s corporation and covered by strata fees.

There are no rules (within reason) restricting owners of a Torrens property such as owning a dog or cat, having a BBQ on your veranda or hanging washing over the balcony. A strata managed building can see less disputes between residents due to the fact there are some rules in place outlining the expectations of occupants.

What is the role of a strata manager?

The owner’s corporation can hire a managing agent for their block of units, known as the strata manager. Not only does this person need to know how to carry out their role but also deal with a number of different personalities.

Some of the skills a strata manger needs are, managing finances and budgets as well as paying bills on time. They are also responsible for collecting the strata levies from the property owners. A broad knowledge of the rules and regulations that govern a strata building, and any compliance requirements is essential.

A manager should engage and retaining reliable and trustworthy contractors and tradespeople and liaise directly with them for any jobs.

It is possible to self-manage a strata, which has the benefits of residents retaining more control over project management and strata levies, but it comes with a lot of work.

Signs of poor strata management

Having good strata management is essential to ensure a property is maintained to a good standard. The quality of the property’s maintenance can impact the long-term value of the property and impact the liveability of the property for its residents.

Frustrated tenants, unable to contact strata management, badly organised or irregular meetings, fees in arrears, bad financial management and neglected maintenance are all glaring signs of poor strata management.

Signs of good strata management

A good manager will take a proactive approach to maintenance through regular inspections to avoid problems forming. The complex should be clean with all facilities in good working order at all times.

Check that repairs for your property are being well managed by reading over previous meeting minutes to see how long it takes repairs to be done. Having a walk around common areas and noticing any problems that have gone unchecked is a good way to measure the effectiveness of a manager.

A strata manager also needs to be good with people and work out conflict between resident in a professional and considerate way.

A final word

If you’re thinking of buying into a strata property having an understanding as to what this means and what your obligations are is important. We hope this article has helped shed some light on what it means. If you want to talk about this in more detail connect with your local Ray White Property Manager.

Disclaimer
Ray White and its subsidiaries, together with their directors, officers, employees and agents have used their best endeavours to ensure the information passed on in this document is accurate. However, you must make your own enquiries in relation to the information contained in this document and seek advice from your financial advisor, broker or accountant to ascertain its application to your circumstances.