for everything you need to know about strata...

"I'm constantly being asked, "What is Strata?"  Well, putting it simply, Strata is a system first introduced into Australia in 1961 for handling the legal ownership of a 'portion' of a building or structure.  These 'portions' are known as 'lots' and can be applied to many different property 'styles' including units, townhouses, villas, commercial offices, factories, warehouses, retail shops and so on.  Read on if you want or need to know more...."

WHAT IS STRATA?

• Before Strata
• Company Title
• Company Title power brokers
• Company Title disputes
• Company Title dangers
• Strata types and styles
• How it all happens
• Obligations of lot owners
• Obligations of lot owners intending to lease their lot
• Lots and Common Property
• Common Property
• Who owns what
• Common Property or Not?
• Extra Information Resources
• Levy Contributions using Unit Entitlements
• Voting Rights using Unit Entitlements
• Communities and Neighbourhoods

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Before Strata

Prior to the introduction of the strata title legislation, it wasn't possible in Australia for an owner to hold a title deed for a 'part' of a building.  The Conveyancing (strata) Act 1961 was introduced to enable the subdivision of a building into strata lots each of which received its own certificate of title.  It also enabled the transfer of these titles to the purchasers.  This was welcomed as owners would finally receive a title deed for their part of the building and, at the same time, obtain a certain degree of freedom and protection that simply wasn't available to them before.

Luckily, Strata title has progressed considerably since its inception in the 60's and many changes have taken place, thanks to a number of other pieces of legislation brought in since then.  The main pieces of legislation today which directly affect Strata Title are the NSW Strata Schemes Management Act 1996 and the NSW Strata Schemes Management Regulation 2005.

NOTE - while there's other legislation which deals with the other types of strata like Community Plans and Neighbourhood Plans, this page deals primarily with Strata Plans.

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Company Title

Pre-Strata, the only way to purchase part of a building was through the Company Title system where a purchaser could buy shares in a company that owned the building.  Under this system a purchaser would 'own the right to occupy' a portion of the building via a sort of share certificate arrangement instead of through the property certificate of title we have today.  Under the terms of the ownership, the shareholder could move into or lease their portion of the building.

While there are Company Title complexes still in operation today they're far less common and not all that popular with either the general public or the major lenders.  This is because a Company Title complex falls under company law (and not strata title law) making a lot of issues somewhat more difficult to manoeuvre and more complex to resolve.  At the same time Company Title offers far less protection for the investor.  It's also a widely known fact that Company Title properties command a much lower price than their strata titled counterparts - generally somewhere between 20% and 30% lower.

Company Title power brokers

Within the Company Title structure, shareholders must essentially comply with the 'wishes' of the company's chairman and other members of the board of directors who hold quite far-reaching powers which are pretty much 'absolute and uncontrolled'.  For example, any owner wanting to sell or transfer their shares or even lease their unit is subject to the approval of the board of directors.  In considering such approval, the company's constitution may direct the board to exercise their powers in a particular way which will ultimately be 'in the best interests of the company' and not necessarily in the interests of the shareholder (or owner).

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Company Title disputes

Dispute resolution is another very grey area when dealing with Company Title properties as there's really no formal procedure for the handling of any disputes.  The only true course of action for the warring parties is through the federal or supreme courts which both come with a hefty price tag.  Many residents in Company Title properties are often quite disempowered, without any effective means of holding the board of directors accountable for their decisions or actions and, often, disputes are not satisfactorily resolved with the conflict between shareholder and boards of directors going on for many years.

Company Title dangers

Forfeiture of shares can be another big danger for the participants in the Company Title system.  Forfeiture, which means the shareholder loses their shares and therefore their property, can happen by the shareholder simply not making the contracted levy payments.  If the company's procedures are for 'the shareholder to forfeit their shares if the levies aren't paid' then the shareholder can lose their property as simple (and as quick) as that.

Another way is if the company is wound up for whatever reason.  In this case all shareholders can lose their properties because the company owns the land and the building - not the shareholders who only own the right to live in the building.

You can now see why the introduction of Strata Title was a 'breath of fresh air' for just about everyone.

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Strata types and styles

Strata title 'types' can be:

• residential
• commercial
• retail
• mixed use - ie retail and/or commercial and/or residential
• serviced apartments
• retirement villages
• caravan parks
• resorts

Strata title complexes can include the following 'styles':

• 3-storey low-rises
• High-rises of 4 or more storeys
• Townhouses, townhomes, villas, duplexes, triplexes, etc.
• Factories and warehouses
• Storage units
• Retail Shops
• Offices

Some of these types and styles can fall under the Community Titles Act.  To learn more about Community and Neighbourhood Schemes read the Community & Neighbourhood information page.

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How it all happens

Putting quite an involved procedure into extremely simplistic terms.....

Providing the zoning permits the construction of a strata scheme, approval needs to be obtained from the local council to proceed with the development and subsequent subdivision of the property into lots and common property.

A registered surveyor draws up a Strata Plan of subdivision showing which parts of the strata scheme will be lots, with the remaining parts being common property.  All lots are allocated a unit entitlement and the original schedule of unit entitlements is shown on the Strata Plan and on the Common Property Title.

TIP - the Strata Plan shows only the original unit entitlement allocation so, if you want to see the up-to-date unit entitlement allocation for the scheme, refer to the Common Property Title which is held by the Owners Corporation or strata managing agent (if one has been appointed)

For more information about unit entitlements and some examples see the section below.

This plan is then submitted to the local council for approval.  When approved by the local council the Strata Plan is registered at the NSW Land Titles Office.  Following successful registration, Certificates of Title are issued by the NSW Land Titles Office for each lot and one for the common property of the Owners Corporation.

Once a Strata Plan is registered, not only does a strata scheme come into existence but an Owners Corporation is formed consisting of every lot owner in the scheme.  This legal entity will then bear the name "The Owners - Strata Plan No.nnnnnn".  The Strata Plan number is allocated by the NSW Land Titles Office and is always a unique number just like your phone number or the number plate on your vehicle.

Now, while there's NO legal requirement for a Strata Plan to have a set of by-laws it's very highly recommended.  Just imagine the situation if owners could effectively 'do what they liked' in a scheme?  I shudder every time I think about that.

Usually the by-laws are provided at registration time and, more often than not, the model by-laws for the particular type of strata scheme are used until the holding of 1st Annual General Meeting (also known as the FAGM) where the chosen model by-laws can then be added to, changed or left as is.

TIP - the latest by-laws for your Strata scheme can be found on the Common Property Title

An Executive Committee, which is the representative entity of the Owners Corporation, is also elected at the FAGM and the levies the owners will pay are determined via a budget of expected expenses.

For all intents and purposes, the strata scheme is now fully operational - and the real fun can begin!!

All levies subsequently received are paid into both the Administrative Fund and the Sinking Fund used in the running and maintaining of the scheme.

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Obligations of lot owners

The principle obligations of all lot owners are:

• to pay rates, taxes and strata levies
• to notify the Owners Corporation of any change in ownership or occupancy
• to comply with the scheme's by-laws
• to behave in a manner which won't offend other residents or interfere with their peaceful enjoyment of the scheme
• to not carry out alterations to their lot without consent from the Owners Corporation and local authority (if required)

Obligations of lot owners intending to lease their lot

The principle obligations of all lot owners intending to lease their lot are:

• to ensure compliance with the scheme's by-laws is a condition of the tenancy agreement
• to supply the tenant with a copy of the scheme's by-laws
• to notify the Owners Corporation of any change in ownership or occupancy
• to notify the Owners Corporation of:
• the name of the tenant
• the date the tenancy commenced
• the name of any property agent involved

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Lots and Common Property

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

Lots

Lots are the units (or apartments or townhouses or villas, etc) or any other areas owned by owners which form part of the lot like laundries, car spaces, garages, marinas, storerooms, etc. and each is shown on the title as being owned by a lot owner.  Lots designated 'not for human occupation' are known as either Utility lots or Parking lots.

Common Property

Common Property is defined as everything on the parcel of land that is NOT contained in any current strata lot(s), such as common stairwells, driveways, visitor parking, roofs, paths, gardens, main gates, garbage areas, exterior walls and windows, balconies, lifts, etc, as well as recreational facilities such as gym, sauna, spa, swimming pool, tennis court, meeting room, golf course, etc.  The common property is owned by the Owners Corporation which comprises all the lot owners as a collective and all owners must contribute to the maintenance of these 'common' areas and facilities through a levy payment system.

NOTE - while it's possible for a scheme to consist of only lots and NO common property it's very rare to actually come across one.  Similarly there are schemes with only ONE lot - again extremely rare.

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Who owns what

The NSW Office of Fair Trading's Buying into a strata scheme information page explains a lot this way:

"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 (eg. the wall between the kitchen and lounge room), floor coverings such as carpet and fixtures such as baths, toilet bowls and benchtops are all the property of the lot owner.

While it is sometimes a hard concept to envisage, a lot owner effectively 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 responsibility to maintain a pergola covering a balcony or courtyard.  They could be in your airspace and therefore, would be maintained at your cost."

Common Property or Not?

For a definitive answer on what forms common property in your strata scheme, you should refer to the Strata Plan for your individual strata scheme.  The boundaries are clearly shown (usually by thick black lines) on the registered Strata Plan for every scheme and, if you don't have the Strata Plan, a copy may be obtained from the NSW Department of Lands (formerly the NSW Land Titles Office) at the corner of Macquarie Street and Prince Alfred Road Sydney NSW, or call them on (02) 9228 6666  OR  13000 LANDS.

Alternatively, you can access the information online at NSW Dept of Lands - Online Search Division.  Look for the link in the paragraph beginning with "To access all these services.....".  Have your credit card ready because obtaining a copy of the Strata Plan is not a free service - it costs about $11 (in 2008).

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Extra information resources

Here are a couple of extra resources to help you understand a bit more about lots and common property.  The NSW Office of Fair Trading document "Common Property and the Lot" goes into great detail and is definitely worth spending a little time on if you need to know more about this topic.  Also, don't forget to have a look at the NSW Dept of Lands Registrar General's Directions information on "Common Property" - it goes into some very good detail on common property issues.

Office of Fair Trading Information pages & booklets

• Common Property and the lot (information page)
• Living in a strata scheme (PDF booklet:page 4 - What would I actually own...)

Dept of Lands Information pages

• Common Property (Information section)

TIP - It's highly recommended that expert advice be obtained if there's ANY uncertainty over common property or common property boundaries

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Unit Entitlements

Levy Contributions using Unit Entitlements

All costs for managing, maintaining, repairing and insuring the common property are shared by all the owners in direct proportion to their lot's respective unit entitlements.  The most up-to-date schedule of unit entitlements for each lot is disclosed in the Common Property Certificate of Title (held by the Owners Corporation) and regulates what proportion of the total levy contribution each owner will be required to pay.  The larger the unit entitlement for a lot, the larger the proportion of the total levy contribution to be paid.

NOTE - The registered Strata Plan document also lists the unit entitlements for the scheme but this list may not be totally up-to-date and should not be relied upon for accuracy.

Here's a simple unit entitlement example:

Example of Levies using Unit Entitlements

Total levy contributions for a strata scheme of 9 lots is $20,000 per annum or $5,000 per quarter
Total Unit Entitlements for the scheme is 1,000 and is divided amongst the total lots

Lots 1-8 each have a unit entitlement of 100 or 10% of the total of 1,000
Lot 9, being much larger, has a unit entitlement of 200 or 20% of the total of 1,000

As Lot 9 is allocated 20% of the unit entitlements its owner must pay 20% of the levy contribution equating to $4,000 per annum or $1,000 per quarter

All other lot owners each pay 10% of the levy contribution equating to $2,000 per annum or $500 per quarter

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Voting Rights using Unit Entitlements

It should be noted that the voting rights of owners are also regulated by the unit entitlement of each respective lot.  This means that the owner of a lot with a higher unit entitlement has proportionally more voting power than the owner of a lot with a lower unit entitlement.

Example of Voting using Unit Entitlements

Using the same unit entitlements as above:

The owner of lot 9 has effectively TWO votes compared to the other 8 lot owners because lot 9's unit entitlement is DOUBLE the other lots — 200 compared to 100.

In other words, the owner of lot 9 has TWICE the voting power of every other owner.

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Communities and Neighbourhoods

In 1989 a further step forward was made when new legislation introduced a tiered management system.  This new legislation was called Community Title and brought even more adventurous ways of subdividing land and buildings.  Community schemes have been established that include vineyards, horse stables, caravans and mobile homes, retirement units, etc.  The more widely known Neighbourhood schemes also fall under the Community Title banner.

As the Community schemes area is quite a large topic please read the Community & Neighbourhood information page

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Strata Title Terms and Jargon

If you need to know the meaning of one or more of the common terms mentioned above then have a look at the Strata Terms and Jargon Information page.

What is strata?
Strata terms and jargon
Frequently Asked Questions
Do-It-Yourself Strata
Strataman News
Helpful links

Buying a strata titled property
Buying "off-the-plan"
By-Laws
Community & Neighbourhood
Compliance issues
Executive Committee
Insurance requirements
Legal advice
Levies & Special Levies
Meetings
Ongoing maintenance&repairs
Owners Corporation
Preventative maintenance
Records & Accounts
Resolving disputes
Small & Large schemes
Strata Managing Agents
Strata trades guide
Taxation & GST

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