By John Cotter, Accredited Specialist Property Law

A great many people, including some so-called experts, completely misunderstand the requirements of the Strata Schemes Management Act 1996 with regard to 2 Lot strata schemes. This misunderstanding includes what requirements do not apply to such schemes, the circumstances in which these exemptions apply (and, more importantly, when those exemptions do not apply).

Exemptions relating to meetings

The easiest exemptions to understand relate to meetings of the Owners Corporation for 2 Lot strata schemes and to the Executive Committee of such schemes.

A quorum for a meeting of such a scheme with two owners is always two people who are entitled to vote [Schedule 2, Clause 12(3)].

The Executive Committee in a 2 Lot strata scheme is made up of :-

  • The owner of each Lot that has only one owner
  • One co-owner of each Lot that is owned by co-owners
  • The company nominee of each Lot owned by a corporation [Schedule 3, Clause 1]

Where exemptions get more detailed, and murky, however is where they relate to levies and insurance requirements.

Financial exemptions

2 Lot strata schemes must always have an Administrative Fund, and therefore the associated levies that go with that.

Many people, quite mistakenly, believe that all 2 Lot strata schemes are automatically exempt from the need to have a sinking fund and, therefore, sinking fund levies. This is, simply, not correct.

Many people also mistakenly believe that the Owners of the Lots in a 2 Lot strata scheme can simply take out normal household/business insurance on their particular Lot and that no other insurance is required.

It is true that such Owners can become exempt from the need to have the Owners Corporation take out building insurance, but Section 87 of the Act sets out a number of insurances that the Owners Corporation for a 2 Lot strata scheme must still take out in it's name, which include workers compensation insurance, voluntary workers insurance and public liability insurance.

Owners of 2 Lot strata schemes will only be exempt from having a sinking fund , in accordance with Section 69 of the Act, and from the requirement to take out building insurance, in accordance with Section 83 of the Act, if :-

  • The buildings in each Lot are physically detached
  • No building, or part of a building, is situated outside the Lots (for example, on common property)
  • The Owners pass a unanimous resolution for the Owners Corporation not to have a sinking fund and/or not to have building insurance for both buildings.

It is vital that the requirements set out above are satisfied in full to achieve the exemptions allowed in the Act if that is what the Owners require. Not to do so, in relation to insurance, could render any insurance taken out by an individual Owner void as that Owner could be argued not to have an insurable interest, as it is the Owners Corporation that has the insurable interest if the correct procedures are not followed.

Another minor exemption for 2 Lot strata schemes is that there are no requirements to have an audit of accounts and financial statements carried out in accordance with the Australian Auditing Standards [Section 107].

Buying a Strata Property?

If you are looking at purchasing a property in a strata scheme, either as a personal investment or as a commercial transaction, contact one of our experienced property lawyers on ph 02 9634 6422 for advice. Ensuring you have the right insurance and understanding your obligations as an owner will prevent potential issues and problems arising in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.