New South Wales can claim credit as the first jurisdiction to introduce strata title, a form of shared ownership that has been replicated around the world. However, despite its popularity (there are more than 80,000 schemes in New South Wales alone), many new owners do not understand the concept and therefore are unclear of what is involved. The first thing that owners need to understand is that they have a shared interest in “common property” that would include walls, ceilings, doors and windows (for example), and individual ownership of their “lot” (basically, the paint on walls and the airspace within). A lot owner (and residents of strata titled properties must also adhere to the by-laws that outline how the property will be managed, and sets out various rules for behaviour). Strata is sometimes referred to as the “fourth layer of government” in Australia – and for good reason. So, assuming you know the basics of strata title, here are my top five tips for buying a strata titled property:
1. Get a strata report
For a relative modest cost (say $250-$300), a strata searcher will attend the offices of your strata manager (or owners corporation secretary, usually) and inspect all the books and records. Their report will reveal:
1. Are there any major building issues that might lead to special levies to fund rectification works?
2. What are the level of levies?
3. Is the owner’s corporation involved in any legal disputes?
4. Is the strata scheme compliant with Council obligations for annual fire testing and the like?
5. Are the unit entitlements fair (these dictate the percentage of levies you will pay and your voting rights)
6. Are there any outstanding disputes that may promote disharmony within the estate?
7. By-Law restrictions on usage etc.
Prospective owners can carry out their own search of the books and records too. If you have the time, and are so inclined, I would recommend doing so – it will give you a good feel for “what is going on” in the building and give you some comfort that all is in order. And if a real estate agent tells you not to worry as there is “nothing to worry about” then DEFINITELY invest the money in obtaining a report.
2. Who is the strata manager?
Some strata managers will not talk to prospective purchasers, claiming there is too great a risk (and they don’t have time) to do so. This is the person entrusted to look after your building and so you need to be comfortable with the company looking after your very significant asset. There are good and bad managers – a good one will ensure that harmony is maintained at the property, repairs and maintenance items are handled efficiently and the owner’s corporation is run fairly for the benefit of all.
Where the strata manager is associated with the developer, this can often be a red flag. There are some unscrupulous developers who seek to shirk their responsibilities to deal with building defects and can inappropriately use a strata manager to classify items as “repairs and maintenance” (that the owners corporation must fund), rather than building defects (which the developer should rectify).
3. What are your intentions for the lot?
If you wish to erect signage on a commercial building, change the blinds, keep a pet, or remodel the kitchen or bathrooms you will likely require strata approval. Is this something that others have obtained? Are pets allowed (formally or informally?) Talk to other owners and the strata manager as to what may or may not be possible?
4. Strata living is community living!
While noisy and anti-social neighbours might be a fact of life at any property, it can be a much greater issue in strata complexes which, by their nature imply that neighbours will be living or working in close proximity to each other. Check out your neighbours; visit the premises at different times of the day and night to get a feel for type of environment you are moving into. You will soon discover if the property is favoured by foreign students, ladies of the night, unruly hipsters or under-occupied retirees.
5. Read the By-laws
Standard by-laws are in place for most older style buildings. However, newer buildings often have their own solicitor drafted by-laws that are far more complex and encompassing. The by-laws may restrict usage, limit number of people or groups of people (e.g. short term letting, over 55’s estates), and set out opening hours of shared facilities such as pools/ tennis courts. The last thing you want is to move into a property and find that you aren’t able to take advantage of the facilities. Unfortunately, not knowing is not a defence to breaching by-laws, so it is best to read through them first.
In New South Wales, the owner’s corporation is not strictly required to enforce by-laws. Walking around the property should give you a feel as to whether restrictions on hanging laundry, erecting signage, placement of garbage receptacles etc is being enforced. While there are ways of ensuring by-laws are enforced, doing so requires a lot of time and handwork.
6. Check the Strata Levies
While many agents might disclose current strata levies, it is also worthwhile understanding whether increases are proposed, a special levy is likely in the future and whether the levies cover services and facilities. The last thing a new owner wants is to find out about additional costs for services and facilities only after moving into their new property!