It is important to understand what you are responsible for and what you actually own when looking at buying into strata. You might be surprised.
Usually, when purchasing an individual lot in a strata scheme, you are only buying the airspace of a lot, the internal surfaces of walls, floors, ceilings including internal walls (and the fixtures and fittings). Certain items known as "common infrastructure", vertical structural elements, or pipes, wires, cables and ducts serving more than one lot and structures enclosing them are usually excluded from your lot unless the strata plan says otherwise.
Common property usually includes external walls and doors and windows in those walls although if buying an older unit (registered pre-1974) this may differ.
An owners corporation has a strict obligation to maintain and repair 'common property'. Therefore, repair and maintenance of common property is the responsibility of all lot owners in the strata scheme apportioned in accordance with their respective unit entitlement allocation. If the owners corporation fails to maintain and repair common property a lot owner may bring a claim against it for damages.
The financial impacts of this responsibility for the owners corporation may be extensive if there are defects arising out of the construction of the building (where the original builder and developer may not be around or you may be out of time to bring a claim against them) or where your building is in a poor state of repair and requires significant remedial works to ensure it is kept in a state of good and serviceable repair. Just because it is not your lot that is impacted by defects or damage does not mean you are not responsible to fix them as a lot owner in the strata scheme collectively with the other owners.
To ensure you know what you are buying, to understand your potential financial commitments and to understand the rules by which your strata scheme (the by-laws) is managed, we provide the following tips:
Get a strata search report before you buy:
A strata search includes information from the strata roll and gives
details on the finances of the scheme, the scheme's insurances
and when they were last checked, any fire safety and other safety
requirements, any building defects and planned works, any existing
or pending legal matters, and meeting notes showing how a scheme is
run which might indicate if your scheme is harmonious or constantly
involved in disputes. It is recommended you engage a professional
strata searcher to prepare the report for you. You will need the
seller's permission via their sales agent to get a strata
search report and must pay a prescribed fee to the owners
corporation for making its records available.
Consider getting a building inspection report for your lot
before you buy:
This usually involves a physical inspection. You can also ask for a
pest inspection. You will need the seller's permission via
their sales agent to get an inspection report. You would want this
particularly if you are aware of any renovations which may not be
approved under a by-law or wish to obtain advice as to general
compliance and condition of the existing lot and any
renovations.
If there are common property defects in the building, there are strict statutory time limits which apply to an owners corporation bringing a claim for those common property building defects (or a lot owner bringing a claim in respect of lot property). Legal advice should be obtained by the owners corporation as soon you become aware of defects arising from the original construction of the property, if the building is less than 2, 6 or 10 years old or within 10 years of remedial works being performed in an existing building.
The Secretary of the Building Commission NSW also has powers to issue orders and bring enforcement proceedings against a developer for defects in building works either before registration of a strata plan or within 10 years of completion in respect of building works in class 2, 3 or 9(c) buildings.
Check the state of structures used to determine lot
boundaries:
It can be difficult to determine where the lot boundary is if
structures used as boundary points such as walls floors and
ceilings, are covered with tiles, timber or similar finishes and
those elements have changed over the years. However, it is
important to know where the boundary lies between your lot and the
common property and/or other surrounding lots, because if something
needs to be repaired or maintained you will need to know who is
responsible.
The usual position (absent any notation in the strata plan to the contrary) is that the upper surface of common property floors are measured from the upper surface of tiles or timber attached to it as were in place at the date of registration of the strata plan.
It is often difficult for a buyer to ascertain what original structures were in place as at registration of a strata plan particularly if the strata scheme is several decades old and there is evidence of numerous renovations having been made over time.
Often at face value it is unclear if this work was done by the owners corporation to replace common property in accordance with its repair obligations, or an owner may have carried out flooring works that was or was not approved by the owners corporation, and the current flooring might not be a good indication of where the lot boundary begins or ends, as well as potentially being unauthorised works to common property.
These matters need investigation and the original state of your lot and the surrounding common property needs to be ascertained by searching the books and records of the owners corporation. A building inspection may also assist.
Read the exclusive use and special privileges by-laws that apply
specifically to your lot and to you as the owner:
Certain by-laws, known as common property rights by-laws, are used
to confer special rights and privileges over certain parts of the
common property in favour of a lot owner or lot owners to the
exclusion of other lot owners. Examples of such by-laws are a right
of exclusive use to park a lot owner's vehicle in a common
property car space, or to use a common property garden area
surrounding a ground floor lot in conjunction with that lot.
These rights will usually require you to maintain and repair the common property you get to exclusively use or have privileges over.
These are valuable rights, and you may wish to seek advice to make sure they are valid and enforceable or if there are any problems with these by-laws, as often there are deficiencies in the terms or plans can be missing which will make them difficult to enforce.
These rights do not amount to an estate or interest in the common property but are statutory covenants. You might want to consider also that such rights are not forever set in stone and could be changed in future.
If you are wanting to ensure that you have exclusive use of an area of common property on a more permanent basis and/or get an interest in the land, then you need to acquire the relevant common property from the owners corporation and enter into an off the plan contract with the owners corporation to register a subdivision plan creating a new lot consisting of your existing lot and the relevant common property area. This can be a costly and time-consuming process requiring development consent and a number of special resolutions to be passed by the owners corporation to give effect to the subdivision and transfer of common property for this purpose, which might not be guaranteed to happen.
Read all exclusive use and special privileges by-laws for
renovations and works to common property that apply specifically to
your lot and to you as the owner:
Carefully read any common property rights by-laws for works carried
out to your lot as you will take on the owner's obligations
under these by-laws when you become the owner of the lot. These
by-laws typically give the owner a right of exclusive use and
special privilege over certain common property where works were
undertaken to that common property, in return for the obligation to
be responsible for the ongoing maintenance and repair of the
relevant common property affected by the works. Often indemnities
are given by owners under the by-law in favour of the owners
corporation for any losses it incurs in connection with any work
done under such a by-law or any resultant damage caused to common
property.
You should read these by-laws carefully to ascertain that works done under the by-law to your lot corresponds with what is there now. If there are any defects in the work, you may be responsible under the by-law terms to rectify those defects. You should therefore look carefully at any renovations made to your lot and any corresponding by-laws to make sure you understand your ongoing obligations.
Does your lot need renovations? You might need a by-law for your
works:
Since 1 November 2016 under the Strata Schemes Management Act 2015
(SSMA), there is a regime in place which divides works that an
owner does to common property surrounding their lot into three
categories:
cosmetic works see section 109;
minor renovations see section 110; and
other works (major renovations) These are works that involve
structural changes, work that changes the external appearance of a
lot, work involving waterproofing, and work for which consent or
approval is required under any other Act (such as a development
consent).
Often what is described in the legislation as a cosmetic work (for
example installing a handrail) or a minor renovation (for example
installing an air conditioner) needs to be considered against the
backdrop of whether or not this will in any case be major
renovation work (because it will change the external appearance of
a lot, no matter how minor the change) as this will be a major
renovation even if the type of work appears in the other
categories.
All works in the nature of a major renovation, and all works done in the past without approval that need to be regularised, including even works that otherwise would have been a minor renovation that were not approved under section 110 of the SSMA before they were undertaken, will require the passing of a common property rights style by-law with the consent of the owner, by special resolution in general meeting of the owners corporation. Such a by-law will need to be registered as part of the registered by-laws for the scheme.
Minor renovations only need to be approved by the owners corporation by ordinary resolution in general meeting, or the strata committee may have power under a registered by-law to make that determination on its behalf, and no by-law is required just for these types of works. Typically, cosmetic works do not require any approvals or by-laws for these types of works.
Are you intending to use your lot for short term rental
accommodation (STRA)? Check your by-laws don't prohibit
it:
If you are buying a lot as an investor for the purposes of
conducting STRA, you may be prevented from using that lot for that
purpose if there is a by-law in place that prohibits such use where
the lot is not your principal place of residence.
If the lot is your principal place of residence the by-law will not apply to you and you will be still able to rent out your lot or rooms in your lot, if you are temporarily away under an STRA provided you comply with the other legal requirements that apply to you as a host under an STRA. The by-laws for your strata scheme may also impose additional obligations.
Watch this space as this issue is the subject of further policy review, with the Department of Planning recently publishing a discussion paper on short and long-term rental accommodation in February 2024, with submissions made under it and now being considered and policy changes being investigated, in light of the recent need to find ways of supplying more long-term residential accommodation in NSW.
By-Laws more generally:
When you own a strata lot, you are obliged to abide by and perform
your obligations under by-laws as if you had entered a binding
contract. By-laws also bind occupiers and tenants of a lot in the
same way.
By-laws regulate the management, administration, control, use or enjoyment of the lots and the common property. These vary from scheme to scheme. Many older scheme's by-laws were based on a model set suitable for residential buildings. More modern schemes usually have a set of developer by-laws specially prepared for the particular scheme.
Owners corporations were required to review their by-laws to update them and there may be many changes to the original by-laws as a result. Some schemes have updated their by-laws, and some haven't.
By-laws typically found in most schemes regulate use of common areas and the behaviour of owners and occupiers to minimise disturbance and interference, safety and security measures, parking, keeping of pets and garbage disposal.
Be aware of your obligations under the by-laws as you can be issued with a notice to comply and be liable for a fine of up to $1,100 if you breach them.
Consider strata levies and whether they are reasonable:
Strata levies are usually payable on a quarterly basis by lot
owners to the owners corporation to pay for the ongoing management
and upkeep of the scheme. Strata levies are generally paid into two
funds that the owners corporation manages, an administrative fund
for the day-to-day management and upkeep of the common property,
and a capital works fund for major work, such as replacing lifts,
roofs, balustrading or fencing. Each scheme is required to have a
10-year capital works plan setting out what levies should be
charged in future, together with annual budgets.
If you are planning to buy a strata property, consider the strata levies bearing in mind the age and condition of the strata scheme you are buying into, and any future costs associated with any major repair or replacement works that may be required to the common property. You should therefore assess whether the current levies are reasonable and realistic.
Many strata schemes might have low levies which is not necessarily an indication of future levies and may need to strike special levies where there isn't enough money in the funds to pay for unforeseen major works or expenses. For example, there has recently been a considerable increase in insurance costs for strata schemes which may not have been anticipated for, and levies will need to increase as a result.
Consider carefully the Section 184 Certificate from your seller
before you complete your purchase:
This is an information certificate by the owners corporation as to
financial and other matters with respect to a lot issued by the
owners corporation or its strata manager which a buyer usually
obtains from the seller 7 days before settlement under the
provisions of the standard form of contract for sale. This
information is required to be given in a standard form approved by
the Department of Fair Trading.
It provides essential information about the financial, managerial and administrative position of the owners corporation and any unpaid contributions by the owner of the lot. It contains details about current levies payable for the lot to the administrative fund and capital works fund, any special levies, outstanding contributions, whether there is any unpaid amounts under a common property rights by-law or other by-law, whether there is any amount recoverable by the owners corporation from that owner for work carried out, any proposals for funding matters set out in the 10 year capital works fund plan with significant contributions, or whether a strata renewal committee has been established for a strata renewal process underway under Part 10 of the Strata Schemes Development Act 2015.
The certificate should also contain particulars of by-laws that have been passed but not yet registered by the owners corporation within a 6-month period of the certificate, details of insurance policies, details of the community association and levies payable by the owners corporation to it, or if a part building strata scheme, the building management committee and amounts payable to the committee under the management statement.
Is your strata lot in a part building scheme or is your scheme
part of a community scheme:
Most strata schemes in NSW consist of a a building or buildings on
land and are subject to by-laws for that scheme and are managed by
the owners corporation.
A part building strata scheme is subject to the by-laws for that scheme and managed by the owners corporation with respect to the common property in that part of the building. Additionally, there is a management statement registered for the whole building and provisions which bind each part building owner, including the owners corporation and owners and occupiers of lots in that strata scheme.
Management statements deal with ownership and management of shared facilities, and who is responsible for paying the costs of shared facilities in the building, which are managed by the building management committee on behalf of the owners of the various building parts (including the owners corporation for its relevant part of the building). The Management Statement may regulate the kinds of works can be done to the building so as to preserve the overall integrity of the building's appearance, which can impact the type of work you can do to your lot. The owners corporation, as owner of the part of building, will be responsible for the payment of its share of the shared costs together with other building members, with respect to the use and maintenance of shared facilities, and will use the scheme's funds for this purpose, for which the strata lot owners will ultimately be responsible to pay for through levies according to their unit entitlements.
If you are buying a lot in a strata scheme that forms part of a community scheme, then in addition to your strata scheme's by-laws you will be subject to the provisions of the community management statement for the community scheme. The community scheme's by-laws prevail over your strata scheme's by-laws and the owners corporation will be responsible for making contributions towards the upkeep and maintenance of its share of the community property in the community scheme for which the strata lot owners will ultimately be responsible to pay for through their levies. There may be landscaping and building restrictions for the overall community scheme that will also apply to your strata scheme lot that may restrict the type of work you can do to your lot. There may also be community scheme by-laws dealing with behaviour while in the scheme, and traffic and parking on accessways which will prevail over your scheme's by-laws.
Conclusion:
While buying a strata apartment might sometimes be viewed a cheaper
form of housing, it is often a more complex form of real estate
ownership. You should recognise the risks and the costs that can
arise because you are not only buying airspace in a lot, but you
are also buying a share in a building which can involve additional
outlays and significant expenses if something goes substantially
wrong with that building.
For further information please contact:
Helen Kowal, Partner
Phone: +61 2 9777 8321
Email: hek@swaab.com.au
For further information please contact:
Daniela Terruso, Partner
Phone:+61 2 9777 8342
Email: dxt@swaab.com.au
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.