If you’re thinking of buying a residential apartment, villa or townhouse, it’s important to understand that you will be buying into a strata scheme. You can also buy into a strata scheme if you buy part of a commercial property complex (e.g. office or retail space in a building occupied by multiple businesses).
Read on to find out everything you need to know about:
- what strata schemes are.
- Strata by-laws.
- Strata fees.
- Strata meetings.
- Strata committees.
- Strata management.
What is a strata scheme?
A strata scheme involves multiple ownership of a building or buildings. Each owner owns a specific portion (called a unit or a lot) and shares ownership of common areas in the building (such as walkways, lifts, paths, driveways, stairwells, the exterior of the building, etc.).
Each owner in the scheme is collectively responsible for its good management by being part of an owners’ corporation (called a body corporate in some Australian States and Territories). There are a variety of ways that this good management can be achieved, including:
- developing strata by-laws,
- charging appropriate strata fees,
- having regular strata meetings,
- forming strata committees, and
- strata management.
Let’s look at each of these strategies in turn.
Strata by-laws
A strata scheme will contain by-laws that all owners must abide by. A by-law is a law that applies to a specific property (such as a building in a strata scheme), not to society in general. However, strata by-laws cannot contradict State, Territory or federal government laws.
Strata scheme by-laws should be designed to promote harmonious community living and safety and protect the building in the interests of all owners.
Common examples of strata by-laws include those that relate to onsite:
- parking,
- noise,
- pet ownership, and
- external changes that may be made to a property.
By-laws in strata schemes are legally enforceable, and penalties can be applied for their breach by any owners.
If you want to buy into a strata scheme, make sure you read and agree with the by-laws currently in place for the building.
Strata fees
Each owner in a strata scheme must pay fees to help maintain the property. They are usually paid quarterly. The amount of these fees usually depends on the size of the unit or lot. Larger units or lots tend to pay proportionally more than smaller ones in the same building.
Strata fees can cover things like:
- the maintenance of the communal areas of the building (e.g., yard, garden or pool areas).
- The cleaning of communal areas (such as lifts, hallways, stairwells and gym areas).
- Building insurance (though each owner is usually responsible for ensuring the content of their own unit or lot).
- A garbage collection service.
- Power to communal areas (e.g., lifts, stairwells and basement parking areas).
- Lift servicing (if the building has one).
- Fire safety equipment maintenance.
- Building repairs when necessary.
- The fees of a professional body corporate management service (if one is hired).
Strata schemes can charge three general types of levies:
- An admin fund levy.
These funds are used for the building’s day-to-day expenses.
- A sinking fund levy.
These funds are set aside for larger, longer-term expenses (such as replacing a lift or painting the exterior of the building after several years). Over time, the balance of this fund should increase to cover expected longer-term expenses when they fall due.
- A special levy.
This is a one-off special levy that can be charged if necessary to cover unexpected expenses (or if there are insufficient funds in the strata scheme’s admin or sinking funds).
If you want to buy into a strata scheme, make sure that you:
-
Understand how much you have to pay.
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Check the balance of the admin fund, the sinking fund, and whether or not there are any special levies currently being proposed. Your solicitor should be able to obtain this information from the minutes of the latest meeting of the owners’ corporation/body corporate.
Strata meetings
Strata schemes must have an owner’s meeting at least once per year (called an annual general meeting, or AGM for short). Meetings can be held more frequently if necessary or desirable.
Each owner of a unit or lot is entitled to vote at each strata meeting on any motion that has been proposed (for example, an increase in strata fees). Each owner can also raise items and motions on the meeting agenda for discussion or voting.
A minimum number of owners (known as a quorum) must vote for a motion to be passed. A quorum is 25% of owners in most States and Territories in Australia. Members can vote in person or submit their vote in writing before the meeting. They can also appoint a proxy to vote on their behalf.
Strata committees
A strata committee can be elected at an AGM to represent the interests of all owners and ensure compliance with all strata by-laws. The strata committee may also be responsible for running the strata scheme if a professional management service is not used.
You must:
- be an owner in the strata to be on the committee,
- have been nominated by another owner, and
- have had your nomination approved at the strata’s AGM.
Strata management
Owners (or the strata committee) can manage their own strata scheme or hire the services of a professional strata manager to do it on their behalf. Services that professional strata managers offer include:
- ensuring compliance with general strata legislation and specific strata scheme by-laws.
- Arranging and paying for building expenses, repairs and maintenance out of strata scheme funds.
- Sending out owner levy notices and collecting and banking levy funds.
- Arranging legal action if necessary to recover any overdue owner levies.
- Preparing annual strata budgets and financial reports.
- Organising and chairing meetings and keeping meeting minutes and associated strata records.
- Keeping the strata committee and owners informed of any relevant information.
The bottom line
It’s important to understand key information about a strata scheme before buying into it.