Strata Issues For Property Investors

updated 15th October 2016

Water penetration, lift upgrades, painting and concrete cancer are the big four cost centres for owners of strata titled properties. Together with general repair and maintenance expenses, they can make investing in a strata titled property very expensive. Below highlights the responsibilities and obligations of owning a unit in a strata scheme and explains what to do if you’re caught in a strata struggle

Some strata communities are well funded and have a closely monitored plan for the projected maintenance and upgrade requirements of their building.

However, many strata management groups fail to plan ahead and as a result, millions of Australians find themselves faced with a billion-dollar strata debt.

What is strata title?

Strata title has enabled the subdivision of land and buildings into lots and common property.

In a strata scheme, several individuals each own a small portion (a “lot”) of a building – such as a high-rise, group of townhouses, apartment block, duplex or separate villas – along with a share of the common property.

The “lots” are the units plus any other areas that are owned with the unit, such as a laundry, car space or garages.

The common property is everything that does not form part of a lot, and is owned by all of the building’s owners collectively. This group is known as the owners corporation in NSW, or the body corporate, strata corporation or strata company in other states. Common property can include recreational facilities such as a gym, sauna, swimming pool, tennis court or meeting room, and all owners must contribute to the maintenance of these facilities. Importantly, it also includes the actual infrastructure of the building – the walls, the floors, the windows and services such as lifts and stairs.

According to the National Community Titles Institute (NCTI), there are currently 3.5 million people living or working in strata title schemes in Australia, which are managed by approximately 2,500 under-resourced strata title managers.

Strata management

The owners corporation may appoint a licensed strata managing agent to carry out some or all of the functions of the owners corporation. The strata manager’s fees, which are one of the many things that levies cover, are determined and reviewed by the owners corporation, and should be supported by a budget which is then tabled at each annual general meeting (AGM).

The levies include the administration fund, which is usually the larger chunk of funds, and covers the day-to-day maintenance of the building and common areas within a strata or community titled scheme.

The second levy, the sinking fund, is a reserve of money to which all owners contribute to pay for communal expenses such as painting the exterior or common interior walls of the building, driveway refurbishment, lift overhauls and replacement of common area carpets, roofing and guttering.

Stakeholders

In a strata situation, who are the stakeholders – and as an owner and investor, where do you fit in?

Owner

The owner of a strata titled property owns a lot in a particular strata scheme. This includes the actual apartment and any related car spaces, laundry areas, courtyards and garages.

Committee

The committee is made up of elected representatives of the owners. The office bearers of chairperson, secretary and treasurer are elected at each AGM. In NSW there can be a minimum of one and a maximum of nine members on any one strata committee at one time.

The functions of different committee members vary depending on the size and scale of your building. In general, the chairman will preside at meetings and decide on issues relating to voting and procedure. The secretary convenes meetings, prepares and distributes meeting minutes, corresponds on behalf of the owners corporation and maintains administrative records. The treasurer issues levy notices and prepares financial statements and other accounting and financial records.

Strata Manager

The role of your complex’s appointed strata manager is varied, and generally covers the day-to-day issues associated with the building, such as organising repairs and maintenance on common areas.

Other services include developing maintenance schedules, providing advice on issues such as sinking funds and professional indemnity insurance cover, and convening and conducting AGMs and management committee, sub-committee and other general member meetings.

The strata manager will communicate regularly with owners and distribute required documents, including Body Corporate Rules & Regulations, ensuring awareness and adherence of these Rules. They can also provide full financial management and accounting services.

Tenant

The tenant resides in an investment property, and like owner-occupiers, they must abide by all relevant by-laws for the complex. This can include issues such as complying with noise restrictions at night, and not keeping animals in the lot without permission.

Builder

Particularly for newer buildings, knowing the builder of your complex is very important because if any defects in the construction arise, you need to know who to approach to get them fixed.

In NSW, for example, if the building is higher than three storeys, the developer is not required to have Home Warranty insurance, which usually protects the buyer from dodgy workmanship. So if your investment property in a four-storey complex or high-rise building suffers any building defects, you have virtually no course of action for compensation.

This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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