This information has been provided by
Australian law firm, Australian Conveyancing Services and is applicable in New South Wales
only.
With the population around Sydney in particular growing at an ever rapid rate, Units and Townhouses are becoming a popular (and cheaper) alternative to owning a house & land. There are now over 60,000 strata title schemes in New South Wales alone.
When you buy into a Townhouse or Unit complex, you need to consider the special legal nature of that type of property, that doesn’t apply to an ordinary house & land situation.
This is because a ‘strata titled’ complex consists of not just one dwelling, but many (from the normal ‘6 pack complex’ to a unit complex of 100s of units). Whether you buy into a small complex or a large one, there are certain principles that generally apply, as follows:
Before you buy into the
Unit/Townhouse, identify what is common property and what
property belongs to the Unit. This is important for 3
reasons:
1. Common property has to be maintained at the expense of
the Owner’s Corporation
2. Common property has to be insured by the Owner’s
Corporation
3. To alter common property you must first get the consent
of the Owner’s Corporation
The strata plan will normally show you the delineation of
the common areas.
You own your unit and
the airspace encompassing that unit (but not the
external walls, roof or floors, which are common property). What you do own is normally the internal walls, and fixtures and fittings such as kitchen, carpets, drapes, etc.
Each unit in the strata scheme has a unit entitlement. Unit entitlement governs the voting rights attaching to the unit, and the proportion of levies that the unit must pay. Each unit owner has an undivided share in the owners corporation, in proportion to the unit entitlement attaching to the unit.
You have an ownership share, along with all other
unit holders, in the common property surrounding the unit (such as
foyer, driveways, pool, grounds, common stairwells, etc)
in proportion to your unit entitlement.
There are rules which
govern your use of the Unit and the common property,
referred to as the Owner's Corporation by-laws. These
by-laws set down the rules of living in the complex.
The Owners Corporation
If you are a Seller, keep your insurance in place until the date of
completion.
All of the owners
comprise the Owner's corporation and they elect an
executive committee to make most of the decisions. They
are responsible for the maintenance of the common
property and other matters relating to the management of
the complex. The
corporation has it’s own individuality (with the right to sue and be sued).
The external building and the common property is owned
by the owners corporation.
Insurance
The owners corporation
has the insurable interest in the improvements, and is
obligated to effect replacement insurance each year on
the building and improvements. The owners corporation is
also obligated to effect insurance for public risk
(covering common property) and worker’s compensation
(covering workers employed by the owners corporation).
If you are a Buyer, don’t
forget to take out insurance for the fixtures and fittings
within your unit, as well as public liability for any
accident that could take place inside your unit.
A unit owner has the insurable interest in the internal fixtures (eg lighting, carpet and
curtains) and contents (eg furniture and moveables (including carpet) in the unit, and this should be covered by a separate insurance policy of the unit owner.
Owner's Corporation
Levies
You pay to the Owner's
Corporation certain levies, and the amount depends on your lot entitlement. There are normally two levies that are payable on a periodic basis:
an administrative budget covering annually recurring expenditure, (ie insurance, annual repairs, lighting to common property, wages etc); and,
a sinking fund budget, to cover long term expenditure (ie painting of the building, repair/replacement of lifts etc). This fund is designed to have funds available to meet long term expenses when they occur. If adequate funding is not put into place early in the life of a building, the sinking fund will not have sufficient funds to meet long term expenses, and the result will be that the owners at the time when the expense is incurred by the owners corporation will have to pay the expense, which will be raised by way of special levy by the owners corporation.
Unit buyers - Do you
Homework First!
I have seen many unit complexes and
strata scheme situations, and each does have its own particular ‘personality’, which is largely dependent on the character types of owners and how they interact. Just like with a normal family – some are rowdy, some always arguing, some peaceful and stable, so too are various
owner's corporations. If you get a good group of owners and a competent
Corporation, you will be happy, but a constantly bickering or inflexible
Corporation can make life very unpleasant. Take a look at the following real life examples:
Example 1: Bonnie was an elderly lady who bought a Unit on the ground floor of a Complex that contained 19 other units. The heat affected her so she wanted to install an air conditioning unit in her bedroom (the type that sticks out of the window/wall). The Body Corporate was a tough one run by a dictatorial Manager, who did not want the outside walls ‘defaced’ by unsightly projections. Bonnie had to stick to a fan.
Example 2: George and Meredith owned a Unit that was part of a ‘6 pack’. Most of the owners used the Units as holiday homes a few times a year, although there were one or two retired owners who lived there permanently. George wanted to put up a lattice wall at the front of his Unit to give him some privacy from the road. The Body Corporate readily agreed and George erected the wall.
Read the Owner's
Corportion family ‘diary’ before you buy!
The Owner's Corporation is required by law to keep a written record of its various dealings. This includes its budgets and forecasts of expenditure, correspondence,
insurance details, particulars of the owners and also the Minutes of meetings with its members.
The Owners Corporation must allow you to inspect their
records upon payment of the stated fee.
Before buying into a Unit complex,
do an Owner's Corporation search to see if everything is fine in the
owner's corporation records.
Here is a checklist of things to look out for:
1. All insurances are in
place and adequate;
2. The amounts held in the administrative and sinking fund, and whether they are adequate;
3. The state of harmony in the building;
4. There are no other matters raised by the owners corporation (eg litigation, special
levies)
These records read like a ‘diary’ and can tell you very quickly whether the Unit/Townhouse experiences trouble between the owners or has other problems.
Take a look at the correspondence file to see if there are
any disputes or legal actions. The Minutes of the Annual General Meetings are particularly helpful in this regard. This meeting is held once a year and all Unit owners can attend. At that meeting, anything of relevance to the complex is discussed, and decisions made on what to do. Looking at the Minutes gives you a good ‘snapshot’ of what went on – are people generally agreeable? Or are there many disputes and disagreements? How reasonable are the participants? Are there ongoing battles?
If the members of the family don’t get along, or there are other problems (such as large expenditures coming up or litigation) then you may not want to buy into this.
By looking at the records before you sign, you can avoid walking into trouble – not all problems that appear after you sign allow you to terminate after you sign (for instance if there is a long history of bickering, disputes or poor management of the complex).
