What Is Strata
What is a Strata Title?
The concept of strata title, is where people own and have title to individual lots (units or apartments) within buildings or complexes. This was originally devised in New South Wales in the early 1960s and is actually an Australian innovation in property law that has been copied around the globe.
In Strata Title you own your unit or apartment as well as sharing ownership and responsibility for ‘common property’ (e.g. foyers, driveways, gardens) through a legal entity called the owners corporation- or body corporate, strata company, community title or community association, depending on your state or territory of residence and the type of scheme.
Developments that can exist under strata title can be residential, commercial, retail, industrial, mixed use (retail and/or commercial and/or residential), serviced apartments, retirement villages, caravan parks and resorts. They can range in size from two lots to over 700 lots.
NSW Fair Trading administers the Strata Schemes Management Act 1996, which sets out a framework for the management of strata schemes by their owners and establishes a dispute resolution process. Download Fair Trading’s Strata living booklet (PDF size: 505kb)
What do I own in a strata scheme?
One major difference between owning a house and a unit in a strata scheme (or ‘lot’) is that the external walls, the floor and roof do not usually belong to the lot owner. These areas are usually common property, which means that the maintenance and repair of these parts of the building are the responsibility of the owners corporation. As it is common property, the lot owner cannot alter or renovate these areas without permission from the owners corporation. Lot owners may need permission to do things such as install services (eg. cable television, phone or internet), knock down walls or replace locks on doors or windows.
Before purchasing a strata lot, the prospective buyer should be clear on the common property boundaries. For a definitive answer on the common property, refer to the strata plan for your individual strata scheme from Land and Property Information NSW. The strata plan shows the layout of the strata scheme and the common property details. Pay close attention to items such as sliding doors leading to balconies, garage doors and balcony railings, as strata plans may differ on whether these are common property. You can also obtain expert advice if you are uncertain about the common property boundaries.
In most strata schemes, the lot owner owns the inside of the unit but not the main structure of the building. Usually the four main walls, the ceiling, roof and the floor are common property. The internal walls within the lot (e.g. the wall between the kitchen and lounge room), floor coverings such as carpet and fixtures such as baths, toilet bowls and bench tops are all the property of the lot owner. Effectively, a lot owner generally owns the ‘airspace’ (and anything included in the airspace) inside the boundary walls, floor and ceiling of the lot.
Airspace can also extend to balconies and courtyards. You should get proper advice about ownership of such things as a tree in the courtyard or the responsibility to maintain a pergola covering a balcony or courtyard. They could be in your airspace and, therefore, would be maintained at your cost. You should also check whether things like car spaces or gardens are part of your lot. If they are, you will be responsible for their maintenance.
What is Common Property?
Common property is all the areas of the land and building not included in any lot. It is jointly owned by all owners, and the owners corporation is responsible for its management. The lot and common property will be defined on your individual strata plan.
A Common property is that part of a Strata Scheme that is owned by everybody, not any one individual. In order to pay for maintenance of common property, the owners corporation has to raise funds from all individual lot owners through regular payments of levies (an amount of money decided by the owners corporation).
What is a Community Scheme?
Generally, community schemes support a variety of different land uses (houses, apartments, gym, shops, golf course) within the one complex. Community schemes operate in much the same way as strata schemes, having lot owners, common property, owners corporations and by-laws.
What is Owners Corporation?
The owners corporation is a legal entity made up of all the owners in the strata scheme. Each lot owner is automatically part of the owners corporation and has a right to participate in the decision making. The owners corporation comes into existence immediately after a strata plan is registered. An owners corporation operates like any other business. It can make rules which are binding on the corporation, owners and tenants regarding the use of common property and the lots, providing that the rules do not contravene legislation governing strata titles or other laws.
The Owners Corporation have a legal responsibility to:
Maintain all common property including the structure of any buildings on the land
Insure the whole of the property for the full replacement value
Administer the finances and common funds of the group of owners
Administer the secretarial functions including the conduct of meetings of members, documentation of minutes, and dealing with all correspondence
Resolve disputes involving members of the owners corporation and enforce the owners corporation rules.
The owners corporation also has a responsibility to maintain proper records, including financial records, orders served, and minutes of meetings.
What is the Executive Committee?
The administration of an owners corporation may be undertaken on behalf of all the lot owners by an executive committee. This consists of a small group of lot owners who are elected yearly at the Annual General Meeting (AGM) of lot owners. An executive committee must ensure state strata law and its own by-laws are adhered to. It also has the ability to change existing by-laws and make new ones. The executive committee can make many of the day-to-day decisions about running the scheme on its behalf. However, the owners corporation can overrule executive committee decisions or limit what they can make decisions about.
The chairperson’s main duty is to preside over all owners corporation and executive committee meetings and make sure they run smoothly.
The powers and duties of the secretary include:
- preparing minutes of meetings and putting a motion to confirm the previous minutes
- issuing notices for the owners corporation and its executive committee, that are required under the Act
- keeping the strata roll
- giving information on behalf of the owners corporation under section 108
- answering correspondence addressed to the owners corporation
- convening meetings of the owners corporation and its executive committee (apart from its first AGM)
- all the administrative and secretarial duties for the owners corporation and the executive committee.
The duties of the treasurer include:
- providing owners with notice of any levies
- issuing receipts, banking and accounting for any money paid to the owners corporation preparing any Certificates under Section 109
- keeping all accounting records and preparing the financial statements.
What Does the Strata Manager Do?
The owners corporation can manage the strata scheme itself, or it can engage a strata managing agent to work on behalf of all owners to help manage the scheme. If it engages a strata managing agent, the owners corporation enters into a contract with the agent, which outlines their duties and responsibilities. The owners corporation has the power to instruct the agent to do certain works and if necessary, they can overrule the agent.
The appointment of a managing agent can only be decided by a majority vote at a general meeting. Only a person who holds a strata managing agent’s license under theProperty Stock and Business Agents Act 2002 can be appointed. Agents can carry out some or all of the functions, duties or powers of the owners corporation including administrative matters such as calling meetings and collecting levies. They should also give advice and guidance about legislative requirements.
Strata managers are involved in co-ordinating the affairs of lot owners including conducting meetings, collecting and banking levies, arranging property maintenance, advising on asset management, placing insurance and keeping financial accounts.
Their duties include:
- Maintain the records of the owners corporation as required by law which includes the strata roll and other statutory records
- Prepare budgets, quarterly and annual financial reports and keeping all accounting records required to prepare such reports
- Arrange for the preparation and submission of income tax returns on behalf of the owners corporation
- Implement credit control procedures in respect of the maintenance contributions
- Have possession of and care for the records and documents of the owners corporation
- Enforce the by-laws strictly as directed by the owners corporation
- Pay accounts and outgoings in accordance with the instructions of the owners corporation and the agreed terms
- Ensure that insurance policies are effected, provide adequate cover and are promptly renewed as required by the Strata Schemes Management Act.
- Promptly attend to any insurance claims that may arise
- Arrange and attend the annual general meeting of the owners corporation – which includes serving the notices of the meeting, and preparing and distributing the minutes of the meeting
- Ensure the strata scheme complies with all the Work Health & Safety (WHS) regulations
- Arrange as required by the owners corporation; the day to day maintenance and repairs to the common property
- Act as secretary and treasurer of the owners corporation and carry out the functions required of these officers by the Strata Scheme Management Act
- Provide advice and assistance to the owners corporation in regard to matters relating to the affairs of the strata plan. In particular this relates to advice on strata titles legislation relating to meetings, management and accounting decisions
- Have custody of the common seal and attest to its affixation
- Generally implement the decisions of the owners corporation
What are Strata Levies?
The role of the owners corporation is to look after the business of the strata scheme. They must set up and keep an administrative fund (for day-to-day operational expenses) and a sinking fund (for long-term future expenditure). The owners corporation must estimate how much money is needed each year for the funds to cover all the expenses and needs of the strata scheme. The levy amount to be paid by owners is decided at each annual general meeting (AGM) by a majority vote. All levies must be worked out based on the unit entitlements of each lot. Levies are usually paid every 3 months.
An owners corporation has the same type of expenditure as a conventional householder. There are council rates, water and electricity charges for common areas, building and public liability insurance and repairs and maintenance of common areas. In a strata scheme, there can also be additional costs such as workers compensation insurance, building valuations, and the resolution of any disputes arising within the scheme.
Lot owners need to make regular contributions to the owners corporation to cover the maintenance and administration of the strata scheme. Owners should pay close attention to the quality and finishes of a building as everything the scheme has to offer must be maintained eg. swimming pools, lifts, tennis courts, saunas etc.
On occasion, lot owners may be asked to pay a ‘special levy’ to raise funds for some expense. This is a one-off payment that is usually made for major renovation or repair work. Special levies can only be made by agreement within the owners corporation.
Who determines the amount of the levies?
Owners Corporation contributions to Owners Corporation costs are calculated in accordance with the lot liability as set out by the surveyor of the property when the strata plan was created. In order to cover the costs of expenses, the law requires that each owners corporation establishes an administrative fund and a sinking fund and raises levies from owners. All levies must be charged in proportion to the unit entitlements of each lot. Levies are determined by the owners at the Annual General Meeting (AGM).
Who issues the levies?
The owners corporation at the AGM instruct the strata manager to issue the levies, usually quarterly in advance.
What is a Sinking Fund?
The sinking fund is for the costs of future capital expenses. The amount in the fund must be enough to cover standard and unexpected capital expenditure items.
Where does all the Levy money go?
All of your levy monies are deposited into your scheme’s individual trust account and divided into two (2) funds:
Administration Fund which covers the following items (amongst others):
- Regular maintenance
- Insurance of the building and common area
- Pool maintenance (if applicable)
- Postage and stationery
- Minor building repairs
- Strata manager/administration
- Legal obligations
- Pest control (of common grounds) etc
- Electricity for common area lighting and facilities
- Water usage
- Caretaker/On Site Manager
Sinking Fund which covers the following items (amongst others):
- Roofing replacement
- Guttering replacement
- Driveway repairs
- Fence installation
- Major plumbing repairs
- Resurface pool (if applicable)
- Pool/shade cloth installation (if applicable)
- Capital expenditure items
- Lift upgrade of replacement etc.
Levies must be paid by the due date. Lot owners cannot object to a levy by not paying it. In NSW, the owners corporation can impose a charge of 10%
simple interest for levies not paid within 1 month of their due date. The owners corporation can also take debt recovery action.
The owners corporation has an obligation under the Act to insure the common property against damage or destruction by fire, explosion and other specific occurrences. It also has an obligation to insure the building for its true replacement value. Periodically, the strata manager will arrange a building replacement cost valuation to ensure that the insurance cover is adequate.
The insurance policy, arranged in the name of your plan in most instances, covers the structure of the property and does not extend to cover privately owned fixtures and fittings in any unit e.g. carpets, paint, curtains, blinds, light fitting or other electrical appliances which are not built into the lot and can be removed without interference to electrical wiring. It is very important to be aware that under the Strata Schemes Management Act 2015, each owner is responsible for their fixtures and fittings (carpets, paint, wallpaper, light fittings etc.), regardless of how the damage was caused. Therefore we strongly advise that you insure your contents against loss or damage from such events beyond your control.
If you are renting your lot, for your protection, we recommend that you arrange Landlord’s Fixtures and Fittings cover and include public liability for the area inside your unit.
What are Proxies?
When a lot owner cannot attend meetings, they have the option of appointing a substitute representative by proxy. This allows owners to have their say in all circumstances. But proxies need controls to ensure that the representation is valid and accurate. In NSW there is a prescribed proxy form. Some states also require the form to be given to lot owners with the meeting notice.
And, in most states the proxy form can be submitted anytime up to the start of the meeting (and even at the meeting). In large schemes in New South Wales proxies need to be delivered before the meeting date.