The Beginner’s Guide to Strata Title
|If you own a unit, townhouse or an apartment, it is likely that the property forms part of a “strata title”, and is governed by a “body corporate”.
It is easy to picture a body corporate as the annoying body corporate manager, who knocks on your door occasionally to tell you to turn your music down. But the legal concept of a body corporate is far more complex, and includes unique “rules” that apply only to the properties that form part of the strata title.
Understanding the “rules”, and what they require, is important for those who intend to live in a strata title property. Ignorance may result in their beloved pet being unable to reside at the property (many strata schemes do not allow pets). For those who intend to invest in a strata property, and not live there, a “set and forget” mindset may result in significant additional costs.
What is a strata scheme? A strata scheme is a type of land development which divides a larger parcel of land into “lots” under the same plan, and provides for how these lots are to be managed by a legal entity (the body corporate).
Under a strata scheme, not only do individual owners own their own individual lot, but they also have a shared ownership over common areas with other lot owners. This may include shared gardens, external walls, roofs, driveways and stairwells. The shared areas are managed by the body corporate.
The degree to which each owner has voting rights in the body corporate decisions, must make body corporate contributions, and shares responsibility for the common areas, is determined by that owner’s “unit entitlement”. Some strata schemes have special “unit entitlements”, to account for different forms of ownership of common property. For example, in some multi-storey apartment complexes, some lot owners may benefit from lift facilities and others may not. The special unit entitlements would take into account that only some owners would be required to maintain the lifts (and their contributions would be calculated and apportioned accordingly).
Strata schemes can operate in residential complexes (units, townhouses, serviced apartments and retirement villages) as well as in commercial settings, such as retail shops or office spaces.
What is strata title? The strata title is the document registered with the Land Titles Office which outlines the ownership of the property and shared areas. It is important to obtain a copy of the strata title and plan to understand what you own and what is common property.
The strata title documents also set out the rights and responsibilities of all parties, and each lot owner’s set unit entitlement.
What is a body corporate and what is it responsible for? The body corporate controls the management and day to day operation of the strata scheme. The body corporate holds the legal responsibility for the management and maintenance of the shared common areas. If there is no separately appointed strata manager, the owners may therefore have additional responsibilities associated with the running of the body corporate.
A body corporate is responsible for things including:
- maintaining, managing and improving common areas of the property on behalf of lot owners;
- making and enforcing its own rules, called “by-laws,” which owners and tenants are required to abide by; and
The body corporate is also responsible for calling meetings of owners to make decisions about running the strata scheme. At least one meeting – the Annual General Meeting (AGM) – must be held every year.
- taking out insurances on behalf of owners, such as building insurance.
Owners are not required to attend the AGM, but given that decisions made will affect lot owners, it is recommended that an owner is aware of all decisions made. Owners may attend either in person or by nominating someone else to attend in their place.
What by-laws apply? A strata scheme must have a set of by-laws. By-laws cover a wide range of issues such as improvements to property, the keeping of pets, noise restrictions and parking.
Many strata schemes make use of the standard “Model By-Laws” implemented by legislation.
It is important to be aware of the specific by-laws that apply to the strata scheme. Penalties can be imposed by the body corporate, depending on the terms of the by-laws and the nature of a contravention.
For example, the provisions of many by-laws (including the Model By-Laws) do not permit pets to be kept on the property without the consent of the body corporate. In our experience, many owners and tenants are not aware of these rules, leading to body corporate disputes.
As an owner what am I responsible for? As an owner, you have different responsibilities to the body corporate, including:
- ensuring you comply with the by-laws; and
Who is responsible for insurances? One of the key roles of the body corporate is to insure all buildings and other improvements on the property site against any unforeseen events, to provide cover for damage to the building, as well as public risk insurance over the site, to insure for circumstances where people may be injured on common areas.
- paying the required fees (contributions).
Not all body corporates adequately maintain insurance, and there can be severe consequences for not doing so. It is important for owners to be vigilant in ensuring that insurance cover is current and appropriate.
Individual owners are responsible for taking out and maintaining their own contents insurance for their lot, and any other applicable insurance cover that the body corporate does not have in place.
How are body corporate fees determined? Owners are required to pay fees to the body corporate, which go toward the maintenance and repair of common areas. Fees are determined at meetings of the body corporate, and are generally apportioned between the owners based on their ownership of their property and shared areas.
Does a body corporate have to be active? A body corporate is required to be active at law, and there are penalties for a failure to have an active body corporate. However, in some instances a body corporate may no longer be functioning (or may never have been). This is largely due to the nature of how the body corporate is run, as often it will rely on owners to actively manage it themselves. In the case of new strata developments, the original owner may have neglected to properly establish the body corporate before selling the lots.
Failure to maintain an active body corporate places the lot owners at significant risk.
Some indications that a body corporate is active include:
- signs that the body corporate is doing things to maintain shared areas;
- owners receive notices of meetings or payment of fees; and
Sometimes, as strata schemes are so comprehensive, a strata manager may be engaged to ensure it is run smoothly. Strata managers are involved in the administration of the scheme by taking on some or all of the body corporate’s responsibilities, on a delegated basis.
- owners receive documents (during the purchase of the property or thereafter) which may contain information indicating that the body corporate is functioning. For example, notices of insurances.
Can I rent out my property? Lot owners can rent out their property, subject to any restrictions in the by-laws.
It is becoming increasingly common for by-laws to prohibit short term leases (leases that are for less than 6 months). Certain types of strata schemes may also impose eligibility requirements on prospective tenants.
It is important to carefully review the by-laws to determine how you can and cannot deal with the property. If the by-laws are uncertain, or vague, it is important to seek proper advice before taking any steps that could subject you to penalties.
How Can We Help? WMM Law has specialist skills and experience to assist with the complex strata issues. Our commercial and property team led by David Bailey can provide you with comprehensive advice and assistance if you are, or your client is, considering buying a strata property including investigating whether a strata scheme applies and ensuring you are not buying into a scheme with significant fees or with unnecessarily strict by-laws.
Further information can be found at our website www.wmmlaw.com.au
Contributions and suggestions from WMM Law News readers are always appreciated. Email us at email@example.com
This newsletter contains material for general educational purposes and is not designed to be advice to any particular person about their own affairs as it does not take into account the circumstances of the reader as an individual. It is recommended that appropriate professional advice be obtained by each reader so that reliance can be taken upon that advice.
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