What are you actu­al­ly buy­ing into when you buy a Stra­ta Unit?

It is impor­tant to under­stand what you are respon­si­ble for and what you actu­al­ly own when look­ing at buy­ing into stra­ta. You might be surprised.

Usu­al­ly, when pur­chas­ing an indi­vid­ual lot in a stra­ta scheme, you are only buy­ing the air­space of a lot, the inter­nal sur­faces of walls, floors, ceil­ings includ­ing inter­nal walls (and the fix­tures and fit­tings). Cer­tain items known as ​“com­mon infra­struc­ture”, ver­ti­cal struc­tur­al ele­ments, or pipes, wires, cables and ducts serv­ing more than one lot and struc­tures enclos­ing them are usu­al­ly exclud­ed from your lot unless the stra­ta plan says otherwise. 

Com­mon prop­er­ty usu­al­ly includes exter­nal walls and doors and win­dows in those walls although if buy­ing an old­er unit (reg­is­tered pre-1974) this may differ. 

An own­ers cor­po­ra­tion has a strict oblig­a­tion to main­tain and repair ​‘com­mon prop­er­ty’. There­fore, repair and main­te­nance of com­mon prop­er­ty is the respon­si­bil­i­ty of all lot own­ers in the stra­ta scheme appor­tioned in accor­dance with their respec­tive unit enti­tle­ment allo­ca­tion. If the own­ers cor­po­ra­tion fails to main­tain and repair com­mon prop­er­ty a lot own­er may bring a claim against it for damages. 

The finan­cial impacts of this respon­si­bil­i­ty for the own­ers cor­po­ra­tion may be exten­sive if there are defects aris­ing out of the con­struc­tion of the build­ing (where the orig­i­nal builder and devel­op­er may not be around or you may be out of time to bring a claim against them) or where your build­ing is in a poor state of repair and requires sig­nif­i­cant reme­di­al works to ensure it is kept in a state of good and ser­vice­able repair. Just because it is not your lot that is impact­ed by defects or dam­age does not mean you are not respon­si­ble to fix them as a lot own­er in the stra­ta scheme col­lec­tive­ly with the oth­er owners.

To ensure you know what you are buy­ing, to under­stand your poten­tial finan­cial com­mit­ments and to under­stand the rules by which your stra­ta scheme (the by-laws) is man­aged, we pro­vide the fol­low­ing tips: 

Get a stra­ta search report before you buy: 

A stra­ta search includes infor­ma­tion from the stra­ta roll and gives details on the finances of the scheme, the scheme’s insur­ances and when they were last checked, any fire safe­ty and oth­er safe­ty require­ments, any build­ing defects and planned works, any exist­ing or pend­ing legal mat­ters, and meet­ing notes show­ing how a scheme is run which might indi­cate if your scheme is har­mo­nious or con­stant­ly involved in dis­putes. It is rec­om­mend­ed you engage a pro­fes­sion­al stra­ta searcher to pre­pare the report for you. You will need the seller’s per­mis­sion via their sales agent to get a stra­ta search report and must pay a pre­scribed fee to the own­ers cor­po­ra­tion for mak­ing its records available.

Con­sid­er get­ting a build­ing inspec­tion report for your lot before you buy: 

This usu­al­ly involves a phys­i­cal inspec­tion. You can also ask for a pest inspec­tion. You will need the seller’s per­mis­sion via their sales agent to get an inspec­tion report. You would want this par­tic­u­lar­ly if you are aware of any ren­o­va­tions which may not be approved under a by-law or wish to obtain advice as to gen­er­al com­pli­ance and con­di­tion of the exist­ing lot and any renovations. 

If there are com­mon prop­er­ty defects in the build­ing, there are strict statu­to­ry time lim­its which apply to an own­ers cor­po­ra­tion bring­ing a claim for those com­mon prop­er­ty build­ing defects (or a lot own­er bring­ing a claim in respect of lot prop­er­ty). Legal advice should be obtained by the own­ers cor­po­ra­tion as soon you become aware of defects aris­ing from the orig­i­nal con­struc­tion of the prop­er­ty, if the build­ing is less than 2, 6 or 10 years old or with­in 10 years of reme­di­al works being per­formed in an exist­ing building. 

The Sec­re­tary of the Build­ing Com­mis­sion NSW also has pow­ers to issue orders and bring enforce­ment pro­ceed­ings against a devel­op­er for defects in build­ing works either before reg­is­tra­tion of a stra­ta plan or with­in 10 years of com­ple­tion in respect of build­ing works in class 2, 3 or 9(c) buildings.

Check the state of struc­tures used to deter­mine lot bound­aries:

It can be dif­fi­cult to deter­mine where the lot bound­ary is if struc­tures used as bound­ary points such as walls floors and ceil­ings, are cov­ered with tiles, tim­ber or sim­i­lar fin­ish­es and those ele­ments have changed over the years. How­ev­er, it is impor­tant to know where the bound­ary lies between your lot and the com­mon prop­er­ty and/​or oth­er sur­round­ing lots, because if some­thing needs to be repaired or main­tained you will need to know who is responsible.

The usu­al posi­tion (absent any nota­tion in the stra­ta plan to the con­trary) is that the upper sur­face of com­mon prop­er­ty floors are mea­sured from the upper sur­face of tiles or tim­ber attached to it as were in place at the date of reg­is­tra­tion of the stra­ta plan.

It is often dif­fi­cult for a buy­er to ascer­tain what orig­i­nal struc­tures were in place as at reg­is­tra­tion of a stra­ta plan par­tic­u­lar­ly if the stra­ta scheme is sev­er­al decades old and there is evi­dence of numer­ous ren­o­va­tions hav­ing been made over time. 

Often at face val­ue it is unclear if this work was done by the own­ers cor­po­ra­tion to replace com­mon prop­er­ty in accor­dance with its repair oblig­a­tions, or an own­er may have car­ried out floor­ing works that was or was not approved by the own­ers cor­po­ra­tion, and the cur­rent floor­ing might not be a good indi­ca­tion of where the lot bound­ary begins or ends, as well as poten­tial­ly being unau­tho­rised works to com­mon property.

These mat­ters need inves­ti­ga­tion and the orig­i­nal state of your lot and the sur­round­ing com­mon prop­er­ty needs to be ascer­tained by search­ing the books and records of the own­ers cor­po­ra­tion. A build­ing inspec­tion may also assist.

Read the exclu­sive use and spe­cial priv­i­leges by-laws that apply specif­i­cal­ly to your lot and to you as the owner:

Cer­tain by-laws, known as com­mon prop­er­ty rights by-laws, are used to con­fer spe­cial rights and priv­i­leges over cer­tain parts of the com­mon prop­er­ty in favour of a lot own­er or lot own­ers to the exclu­sion of oth­er lot own­ers. Exam­ples of such by-laws are a right of exclu­sive use to park a lot owner’s vehi­cle in a com­mon prop­er­ty car space, or to use a com­mon prop­er­ty gar­den area sur­round­ing a ground floor lot in con­junc­tion with that lot. 

These rights will usu­al­ly require you to main­tain and repair the com­mon prop­er­ty you get to exclu­sive­ly use or have priv­i­leges over. 

These are valu­able rights, and you may wish to seek advice to make sure they are valid and enforce­able or if there are any prob­lems with these by-laws, as often there are defi­cien­cies in the terms or plans can be miss­ing which will make them dif­fi­cult to enforce.

These rights do not amount to an estate or inter­est in the com­mon prop­er­ty but are statu­to­ry covenants. You might want to con­sid­er also that such rights are not for­ev­er set in stone and could be changed in future. 

If you are want­i­ng to ensure that you have exclu­sive use of an area of com­mon prop­er­ty on a more per­ma­nent basis and/​or get an inter­est in the land, then you need to acquire the rel­e­vant com­mon prop­er­ty from the own­ers cor­po­ra­tion and enter into an off the plan con­tract with the own­ers cor­po­ra­tion to reg­is­ter a sub­di­vi­sion plan cre­at­ing a new lot con­sist­ing of your exist­ing lot and the rel­e­vant com­mon prop­er­ty area. This can be a cost­ly and time-con­sum­ing process requir­ing devel­op­ment con­sent and a num­ber of spe­cial res­o­lu­tions to be passed by the own­ers cor­po­ra­tion to give effect to the sub­di­vi­sion and trans­fer of com­mon prop­er­ty for this pur­pose, which might not be guar­an­teed to happen.

Read all exclu­sive use and spe­cial priv­i­leges by-laws for ren­o­va­tions and works to com­mon prop­er­ty that apply specif­i­cal­ly to your lot and to you as the own­er:

Care­ful­ly read any com­mon prop­er­ty rights by-laws for works car­ried out to your lot as you will take on the own­er’s oblig­a­tions under these by-laws when you become the own­er of the lot. These by-laws typ­i­cal­ly give the own­er a right of exclu­sive use and spe­cial priv­i­lege over cer­tain com­mon prop­er­ty where works were under­tak­en to that com­mon prop­er­ty, in return for the oblig­a­tion to be respon­si­ble for the ongo­ing main­te­nance and repair of the rel­e­vant com­mon prop­er­ty affect­ed by the works. Often indem­ni­ties are giv­en by own­ers under the by-law in favour of the own­ers cor­po­ra­tion for any loss­es it incurs in con­nec­tion with any work done under such a by-law or any resul­tant dam­age caused to com­mon property.

You should read these by-laws care­ful­ly to ascer­tain that works done under the by-law to your lot cor­re­sponds with what is there now. If there are any defects in the work, you may be respon­si­ble under the by-law terms to rec­ti­fy those defects. You should there­fore look care­ful­ly at any ren­o­va­tions made to your lot and any cor­re­spond­ing by-laws to make sure you under­stand your ongo­ing obligations.

Does your lot need ren­o­va­tions? You might need a by-law for your works:

Since 1 Novem­ber 2016 under the Stra­ta Schemes Man­age­ment Act 2015 (SSMA), there is a régime in place which divides works that an own­er does to com­mon prop­er­ty sur­round­ing their lot into three categories: 

• cos­met­ic works see sec­tion 109;
• minor ren­o­va­tions see sec­tion 110; and
• oth­er works (major ren­o­va­tions) These are works that involve struc­tur­al changes, work that changes the exter­nal appear­ance of a lot, work involv­ing water­proof­ing, and work for which con­sent or approval is required under any oth­er Act (such as a devel­op­ment consent).

Often what is described in the leg­is­la­tion as a cos­met­ic work (for exam­ple installing a handrail) or a minor ren­o­va­tion (for exam­ple installing an air con­di­tion­er) needs to be con­sid­ered against the back­drop of whether or not this will in any case be major ren­o­va­tion work (because it will change the exter­nal appear­ance of a lot, no mat­ter how minor the change) as this will be a major ren­o­va­tion even if the type of work appears in the oth­er categories.

All works in the nature of a major ren­o­va­tion, and all works done in the past with­out approval that need to be reg­u­larised, includ­ing even works that oth­er­wise would have been a minor ren­o­va­tion that were not approved under sec­tion 110 of the SSMA before they were under­tak­en, will require the pass­ing of a com­mon prop­er­ty rights style by-law with the con­sent of the own­er, by spe­cial res­o­lu­tion in gen­er­al meet­ing of the own­ers cor­po­ra­tion. Such a by-law will need to be reg­is­tered as part of the reg­is­tered by-laws for the scheme. 

Minor ren­o­va­tions only need to be approved by the own­ers cor­po­ra­tion by ordi­nary res­o­lu­tion in gen­er­al meet­ing, or the stra­ta com­mit­tee may have pow­er under a reg­is­tered by-law to make that deter­mi­na­tion on its behalf, and no by-law is required just for these types of works. Typ­i­cal­ly, cos­met­ic works do not require any approvals or by-laws for these types of works.

Are you intend­ing to use your lot for short term rental accom­mo­da­tion (STRA)? Check your by-laws don’t pro­hib­it it: 

If you are buy­ing a lot as an investor for the pur­pos­es of con­duct­ing STRA, you may be pre­vent­ed from using that lot for that pur­pose if there is a by-law in place that pro­hibits such use where the lot is not your prin­ci­pal place of residence. 

If the lot is your prin­ci­pal place of res­i­dence the by-law will not apply to you and you will be still able to rent out your lot or rooms in your lot, if you are tem­porar­i­ly away under an STRA pro­vid­ed you com­ply with the oth­er legal require­ments that apply to you as a host under an STRA. The by-laws for your stra­ta scheme may also impose addi­tion­al oblig­a­tions.

Watch this space as this issue is the sub­ject of fur­ther pol­i­cy review, with the Depart­ment of Plan­ning recent­ly pub­lish­ing a dis­cus­sion paper on short and long-term rental accom­mo­da­tion in Feb­ru­ary 2024, with sub­mis­sions made under it and now being con­sid­ered and pol­i­cy changes being inves­ti­gat­ed, in light of the recent need to find ways of sup­ply­ing more long-term res­i­den­tial accom­mo­da­tion in NSW.

By-Laws more gen­er­al­ly:

When you own a stra­ta lot, you are oblig­ed to abide by and per­form your oblig­a­tions under by-laws as if you had entered a bind­ing con­tract. By-laws also bind occu­piers and ten­ants of a lot in the same way. 

By-laws reg­u­late the man­age­ment, admin­is­tra­tion, con­trol, use or enjoy­ment of the lots and the com­mon prop­er­ty. These vary from scheme to scheme. Many old­er scheme’s by-laws were based on a mod­el set suit­able for res­i­den­tial build­ings. More mod­ern schemes usu­al­ly have a set of devel­op­er by-laws spe­cial­ly pre­pared for the par­tic­u­lar scheme.

Own­ers cor­po­ra­tions were required to review their by-laws to update them and there may be many changes to the orig­i­nal by-laws as a result. Some schemes have updat­ed their by-laws, and some haven’t.

By-laws typ­i­cal­ly found in most schemes reg­u­late use of com­mon areas and the behav­iour of own­ers and occu­piers to min­imise dis­tur­bance and inter­fer­ence, safe­ty and secu­ri­ty mea­sures, park­ing, keep­ing of pets and garbage disposal.

Be aware of your oblig­a­tions under the by-laws as you can be issued with a notice to com­ply and be liable for a fine of up to $1,100 if you breach them.

Con­sid­er stra­ta levies and whether they are reasonable: 

Stra­ta levies are usu­al­ly payable on a quar­ter­ly basis by lot own­ers to the own­ers cor­po­ra­tion to pay for the ongo­ing man­age­ment and upkeep of the scheme. Stra­ta levies are gen­er­al­ly paid into two funds that the own­ers cor­po­ra­tion man­ages, an admin­is­tra­tive fund for the day-to-day man­age­ment and upkeep of the com­mon prop­er­ty, and a cap­i­tal works fund for major work, such as replac­ing lifts, roofs, balustrad­ing or fenc­ing. Each scheme is required to have a 10-year cap­i­tal works plan set­ting out what levies should be charged in future, togeth­er with annu­al budgets.

If you are plan­ning to buy a stra­ta prop­er­ty, con­sid­er the stra­ta levies bear­ing in mind the age and con­di­tion of the stra­ta scheme you are buy­ing into, and any future costs asso­ci­at­ed with any major repair or replace­ment works that may be required to the com­mon prop­er­ty. You should there­fore assess whether the cur­rent levies are rea­son­able and realistic.

Many stra­ta schemes might have low levies which is not nec­es­sar­i­ly an indi­ca­tion of future levies and may need to strike spe­cial levies where there isn’t enough mon­ey in the funds to pay for unfore­seen major works or expens­es. For exam­ple, there has recent­ly been a con­sid­er­able increase in insur­ance costs for stra­ta schemes which may not have been antic­i­pat­ed for, and levies will need to increase as a result.

Con­sid­er care­ful­ly the Sec­tion 184 Cer­tifi­cate from your sell­er before you com­plete your purchase: 

This is an infor­ma­tion cer­tifi­cate by the own­ers cor­po­ra­tion as to finan­cial and oth­er mat­ters with respect to a lot issued by the own­ers cor­po­ra­tion or its stra­ta man­ag­er which a buy­er usu­al­ly obtains from the sell­er 7 days before set­tle­ment under the pro­vi­sions of the stan­dard form of con­tract for sale. This infor­ma­tion is required to be giv­en in a stan­dard form approved by the Depart­ment of Fair Trading.

It pro­vides essen­tial infor­ma­tion about the finan­cial, man­age­r­i­al and admin­is­tra­tive posi­tion of the own­ers cor­po­ra­tion and any unpaid con­tri­bu­tions by the own­er of the lot. It con­tains details about cur­rent levies payable for the lot to the admin­is­tra­tive fund and cap­i­tal works fund, any spe­cial levies, out­stand­ing con­tri­bu­tions, whether there is any unpaid amounts under a com­mon prop­er­ty rights by-law or oth­er by-law, whether there is any amount recov­er­able by the own­ers cor­po­ra­tion from that own­er for work car­ried out, any pro­pos­als for fund­ing mat­ters set out in the 10 year cap­i­tal works fund plan with sig­nif­i­cant con­tri­bu­tions, or whether a stra­ta renew­al com­mit­tee has been estab­lished for a stra­ta renew­al process under­way under Part 10 of the Stra­ta Schemes Devel­op­ment Act 2015.

The cer­tifi­cate should also con­tain par­tic­u­lars of by-laws that have been passed but not yet reg­is­tered by the own­ers cor­po­ra­tion with­in a 6‑month peri­od of the cer­tifi­cate, details of insur­ance poli­cies, details of the com­mu­ni­ty asso­ci­a­tion and levies payable by the own­ers cor­po­ra­tion to it, or if a part build­ing stra­ta scheme, the build­ing man­age­ment com­mit­tee and amounts payable to the com­mit­tee under the man­age­ment statement.

Is your stra­ta lot in a part build­ing scheme or is your scheme part of a com­mu­ni­ty scheme: 

Most stra­ta schemes in NSW con­sist of a a build­ing or build­ings on land and are sub­ject to by-laws for that scheme and are man­aged by the own­ers corporation.

A part build­ing stra­ta scheme is sub­ject to the by-laws for that scheme and man­aged by the own­ers cor­po­ra­tion with respect to the com­mon prop­er­ty in that part of the build­ing. Addi­tion­al­ly, there is a man­age­ment state­ment reg­is­tered for the whole build­ing and pro­vi­sions which bind each part build­ing own­er, includ­ing the own­ers cor­po­ra­tion and own­ers and occu­piers of lots in that stra­ta scheme. 

Man­age­ment state­ments deal with own­er­ship and man­age­ment of shared facil­i­ties, and who is respon­si­ble for pay­ing the costs of shared facil­i­ties in the build­ing, which are man­aged by the build­ing man­age­ment com­mit­tee on behalf of the own­ers of the var­i­ous build­ing parts (includ­ing the own­ers cor­po­ra­tion for its rel­e­vant part of the build­ing). The Man­age­ment State­ment may reg­u­late the kinds of works can be done to the build­ing so as to pre­serve the over­all integri­ty of the building’s appear­ance, which can impact the type of work you can do to your lot. The own­ers cor­po­ra­tion, as own­er of the part of build­ing, will be respon­si­ble for the pay­ment of its share of the shared costs togeth­er with oth­er build­ing mem­bers, with respect to the use and main­te­nance of shared facil­i­ties, and will use the scheme’s funds for this pur­pose, for which the stra­ta lot own­ers will ulti­mate­ly be respon­si­ble to pay for through levies accord­ing to their unit entitlements.

If you are buy­ing a lot in a stra­ta scheme that forms part of a com­mu­ni­ty scheme, then in addi­tion to your stra­ta scheme’s by-laws you will be sub­ject to the pro­vi­sions of the com­mu­ni­ty man­age­ment state­ment for the com­mu­ni­ty scheme. The com­mu­ni­ty scheme’s by-laws pre­vail over your stra­ta scheme’s by-laws and the own­ers cor­po­ra­tion will be respon­si­ble for mak­ing con­tri­bu­tions towards the upkeep and main­te­nance of its share of the com­mu­ni­ty prop­er­ty in the com­mu­ni­ty scheme for which the stra­ta lot own­ers will ulti­mate­ly be respon­si­ble to pay for through their levies. There may be land­scap­ing and build­ing restric­tions for the over­all com­mu­ni­ty scheme that will also apply to your stra­ta scheme lot that may restrict the type of work you can do to your lot. There may also be com­mu­ni­ty scheme by-laws deal­ing with behav­iour while in the scheme, and traf­fic and park­ing on access­ways which will pre­vail over your scheme’s by-laws.

Con­clu­sion:

While buy­ing a stra­ta apart­ment might some­times be viewed a cheap­er form of hous­ing, it is often a more com­plex form of real estate own­er­ship. You should recog­nise the risks and the costs that can arise because you are not only buy­ing air­space in a lot, but you are also buy­ing a share in a build­ing which can involve addi­tion­al out­lays and sig­nif­i­cant expens­es if some­thing goes sub­stan­tial­ly wrong with that building.