If you are looking to acquire a residential or commercial property in an apartment building, or a unit or townhouse situated on land shared by other properties, you will be purchasing part of a strata title. It is also known as acquiring property as part of a strata scheme.
To allow multiple owners to own title to a smaller piece of the overall land that has been subdivided, the title to the piece of land is broken up into lots. This gives each owner the opportunity to purchase a particular piece of the strata title and the description will be documented in the sale contract and its section 32 vendor statement.
Body Corporate, now known as Owners Corporation, and Strata Title are two different concepts. However, these terms tend to be misused and, often, used interchangeably. Real estate agents, conveyancers, lawyers, accounting and tax advisors and other related specialists should not be making these mistakes! While these terms both refer to aspects of apartment, unit or townhouse ownership, they each represent something completely different. It is important that you understand the difference between the two concepts so that when you are acquiring a property that has strata title, you understand the importance of the body corporate and any associated rights, responsibilities and liabilities.
Brief look at Body Corporate / Owners Corporation
Body Corporate and Owners Corporation mean the same thing! It is a term used to refer to the group of owners that collectively own the land on which their unit, apartment or townhouse is situated. Since there is more than one property situated on a single piece of land (because it has been subdivided), each and every owner owns a portion of the land. This ownership is not literal, but theoretical. Assuming the land size stays the same, the more owners on a particular parcel of land, the lesser the portion attributable to each owner. The application of this theory is in relation to the council rates, shared utilities and owners corporation fees payable by the owners.
Brief look at Strata Title
Strata Title refers to the title each owner acquires when they purchase a property on a piece of land that is shared with other properties. In addition to owning the lot, i.e. the apartment, unit or townhouse, each strata title owner also owns a proportionate piece of the common property. This means that each strata title owner will collectively own all the land on which their property is situated with the other owners. The proportion of common property owned depends on the units prescribed to each owner and this is documented in the owners corporation certificate that will be produced in the sale contract. Typically, the larger the unit, apartment or townhouse, the greater the proportion of common property owned.
In the remainder of this blog, we provide more detail about body corporate (now owners corporation) and strata title. To help you understand the application and use of the terms, and its relevance to unit, apartment or townhouse ownership, we provide responses to frequently asked questions.
Why is strata title more common?
In Australia, the availability of land is decreasing. The State and Federal government are slowly developing new areas beyond the CBD and surrounding suburbs. As a result of population growth, housing availability is a growing concern. To fit more people into existing land spaces, apartment blocks, units and townhouses make it easier to squeeze in more people. Of course, the living space will be smaller and the associated cost of the property will be lower. As a result, this causes owners to share land with others and therefore strata titles are created with all owners being members of the owners corporation.
What does an owners corporation do?
An owners corporation comprises owners that collectively own the title to the parcel of land that has been subdivided. Each owner owns their own title and that title prescribes them units of ownership in the overall title. Think about each owner owning a percentage of the overall title. The owners are responsible for managing the common property, insuring the strata scheme and ensuring applicable laws and regulations are followed. The owners corporation will collectively develop rules and appoint a committee to represent all owners. To assist with day-to-day management and tasks, owners corporations typically engage a third party owners corporation management service provider.
Can I join the owners corporation committee?
Each owners corporation will have rules about joining the committee. Before acquiring a unit, apartment or townhouse, you should obtain a copy of the owners corporation rules from the committee or their managed service provider. There should be no discrimination in the appointment process. Members of the committee are typically appointed on an annual basis and you might have to wait until the annual AGM is held to nominate yourself for a committee position (remember to nominate correctly in advance).
What am I required to do as a member of an owner corporation?
As a member of the owners corporation, you will be required to pay fees to the owners corporation, comply with owners corporation rules (and advise any tenants of the rules), attend AGMs for the betterment of the corporation and undertake any tasks that you have volunteered to complete. Other than that, nothing else is typically required.
Do I pay additional fees when I am a member of a strata scheme?
If you have acquired a property that has a strata title, you will be required to pay additional ownership fees to fund maintenance of common property, insurance of the strata scheme (i.e. the building, common property between townhouses, etc.) and licences and regulatory approvals. These fees are in addition to council rates, electricity usage, water usage, etc. The fees are mandatory and cannot be avoided.
You should check the fees because apartment building or townhouse sites with many common property features will usually have higher fees. These fees are known as owners corporation fees. The fee will be allocated to funds that cover administrative and maintenance costs of the owners corporation.
What does the administration fund and maintenance fund cover?
Owners corporation fees will be allocated towards administration funds and maintenance funds. The allocation split will be agreed at each AGM during the budgeting process. The administration fund covers matters such as issuing rates notices to owners, sending letters, holding AGMs, performing administrative tasks, hiring an owners corporation manager, hiring a building manager, etc. The maintenance fund covers matters such as maintenance to the common property (beyond building warranty), improvements to common property and other matters that have been agreed at the AGM.
Other funds can also be developed such as a special purpose fund or sinking fund. This all depends on the financial health of the owners corporation and you should check the level of the funds and the owners corporation’s outgoings to ensure the owners corporation has been and is being managed appropriately.
Why do strata title owners have to own a portion of common property?
Since strata title owners acquire a particular subdivided lot, if no one was to take responsibility of common property (i.e. driveways, courtyards, swimming pools, entrances, post box area, gardens, carparks, etc.) then the common property would not be managed and maintained appropriately.
Therefore, to ensure responsibility and accountability and to prevent disputes between owners of strata title, the law requires that each lot owner also is responsible for funding their share of common property. This share is calculated based on the number of units acquired in the common property. The unit holding schedule will be published in the vendor’s sale contract. You should read the schedule, make sure there are no errors and ask any questions to the vendor’s legal or conveyancing representative.
What are the downsides of strata title?
When you acquire a unit, townhouse or apartment for occupation or investment purposes, you will be acquiring a strata title. This means you share the responsibilities of managing the common property, insurance requirements and licencing obligations with other owners. You will be required to pay owners corporation fees and these fees will adjust depending on the financial state of the owners corporation, condition of the common property and other matters. While many opt for apartment, unit or townhouse living because the property is comparatively cheaper, there are other costs and you will have to make decisions with other people.
Difference between strata title and stratum or company title?
Strata title is different to stratum or company title. Historically, company title and stratum title used to exist. Do not confuse yourself with these terms. Company and stratum title do not involve an owners corporation (formerly body corporate) and are less common. For example, stratum and company title in Victoria are not regulated by the Owners Corporation Act 2006 (Vic).
Buying into a company title or stratum title property is different from buying into an owners corporation. You should check the constitution of the company title corporation or service company carefully for any restrictions.
What should you do before acquiring a property with strata title?
Before acquiring a property with strata title, you should:
- – Check the owners corporation certificate;
- – Read the owners corporation rules;
- – Check the owners corporation funds and outgoings;
- – Check the owners corporation fees;
- – Inspect the common property;
- – Understand the history of the owners corporation;
- – Check if the common property is still covered by builder’s warranty;
- – Review any special conditions; and
- – Ask any questions that you might have.
At Our Body Corp, we provide our clients with effective owners corporation management services. We have developed an innovative cloud solution which enables owners that are members of an owners corporation to appropriately and efficiently manage their owners corporation affairs with the help of qualified and experienced consultants. To learn more, contact our team on 1300 848 343.