What is Strata?
Strata Title is a system of property ownership in which a building is divided into privately owned portions known as ‘lots’ and commonly owned portions known as ‘common property’.
The building can be anything from residential apartment blocks, townhouse or villa complexes through to commercial office buildings and industrial warehouses.
In addition to each individual lot, each owner also shares ownership of the common property which usually encompasses foyers, gardens, stairwells, driveways and external walls.
What parts of the property comprise the strata lot and which parts comprise the common property can sometimes be confusing and can lead to disagreement about who has what rights and what responsibilities for the property in question.
A crucial thing to bear in mind if you buy a strata lot is that you then own the cubic space between the walls, floors and ceilings with the structures behind those surfaces being part of the common property that is owned by the Owners Corporation. You can get into strife if you treat any of the structures surrounding that cubic space as if it were yours.
You will normally need permission from the Owners Corporation to have exclusive use of any part of the common property. This can mean, for example, having to seek permission to drill into or put wiring or pipes inside walls, floors or ceilings of an apartment. Renovation of an apartment should never be done without first seeking consent from the Owners Corporation.
Each individual lot owner is responsible for maintaining their own property, but the common property is maintained by all the lot owners through a system of levy payment and collective decision-making and delegation of functions to committees and managers. This is where the Owners Corporation comes in.
The Owners Corporation
The Owners Corporation is comprised of each lot owner in the Strata Scheme. It is responsible for administering, controlling, and maintaining all areas of the Strata Scheme.
In NSW, under the Strata Schemes Management Act 2015 the Owners Corporation is responsible for the insurance, maintenance and repair of all common areas in the Strata Scheme. These common areas include building structures and built surfaces, lobbies, lifts, hallways, shared facilities like laundries, gyms and swimming pools.
The Owners Corporation must also ensure that fire safety measures are maintained throughout the building. The Owners Corporation is also required to make a record of all meetings that are held, and must retain accounting and financial statements of all transactions.
The Owners Corporation’s administration role includes keeping the Strata Roll, which records the names of each lot owner in the scheme. The Strata Roll contains general information regarding the Strata Scheme, including the postal address and Strata Plan Number of the Scheme, the names of anyone renting a lot in the Strata Scheme, building insurance details and any rules that the Owners Corporation has agreed to put in place to maintain harmony amongst residents, such as parking restrictions and noise curfews (called ‘by-laws’).
As there are often large numbers of strata lots in some schemes, much of the decision-making is done on behalf of the Owners Corporation by a smaller representative body. This is where the Strata Committee comes in.
Strata Committee
The Strata Committee consists of individual lot owners elected to the committee at an Annual General Meeting (AGM) of the Owners Corporation. The Committee is chiefly responsible for the day-to-day running and governance of the Strata Scheme. It has three elected office bearer positions:
- The Chairperson: Presides at all meetings of the Executive Committee but does not have a casting vote on resolutions considered at committee meetings.
- The Secretary: Responsible for preparing meetings, providing notices, answering correspondence addressed to the Owners Corporation and generally completing all administrative and secretarial duties for the Owners Corporation and Strata Committee.
- The Treasurer: Responsible for giving notice of any levies, keeping all accounting records, preparing financial statements and section 184 certificates, and managing the general banking and account management for money paid to the Owners Corporation.
Most of the statutory responsibilities of the Owners Corporation are delegated to the Executive Committee to carry out, even though it is the Owners Corporation that is ultimately responsible for them. The only additional responsibilities of the Executive Committee are the administrative duties fulfilled by the Chairperson, the Secretary and the Treasurer.
Strata Manager
The Owners Corporation can engage a licensed strata managing agent (usually called the ‘Strata Manager’) to help manage the scheme. The Strata Manager’s responsibilities have to be set out in an agency agreement. They provide services to the Owners Corporation as a whole and not to individual lot owners.
The Strata Manager is appointed by the Owners Corporation by a formal vote. If they are appointed:
- before the first AGM, then their appointment ends at the first AGM; or
- during the first AGM, then they are appointed for up to 12 months.
Any subsequent appointment can only be for a maximum of three (3) years. After three (3) years, a new agreement must be negotiated and entered into.
The developer of a Strata Scheme, or a person linked to the developer, cannot be appointed until 10 years has passed from the commencement of the Strata Scheme.
A Strata Manager oversees the day-to-day management of strata properties on behalf of the Owners Corporation and its Strata Committee. Depending on the complexity and size of the Strata Scheme, the owners may decide to have more than one manager. Strata managers have systems, processes and experience that put them in a position to more easily carry out their functions than the property owners doing it themselves.
They offer advice on common property management and are entrusted with the following duties and responsibilities:
- keeping the Strata Roll
- property maintenance
- custody and updating of records
- financial management and taxation
- arranging and conducting meetings and related administration
- managing and sharing information and communications
- managing compliance with building and safety requirements
Although the Strata Management is responsible for the above duties, the Owners Corporation and or strata committee is responsible and accountable to the lot owners, although they have the power to vote to replace the Strata Manager if not satisfied them.
Strata Levies and Special Levies
Owners of lots in a Strata Scheme are required to pay regular levies (usually paid quarterly) to cover the cost of things like administering the scheme and maintaining and repairing the common areas and structural parts of the building. Owners Corporations are required by law to maintain two types of funds:
- The Administrative Fund: This fund is for paying the day-to-day running expenses of the Strata Scheme, such as common property water and electricity bills, repairs, gardening, etc.
- The Capital Works Fund: This fund is for paying both expected and unexpected larger scale maintenance costs and capital expenditure. The amount retained in this fund should be large enough to cover any unexpected expenses, for example, roofing or structural repairs or repainting.
If funds raised for these two funds are not enough to cover unexpected, essential expenses, another type of levy can be raised from time to time to supplement those funds or to entirely cover such expenses:
- Special Levies: This type of levy is issued when the administrative fund and capital works fund don’t have enough funds to pay for an essential expense such as weather damage to the roof or upgrading/replacing a lift or other larger scale equipment. If the expense is not essential, it may be postponed until the next quarterly levy is issued.
As with the regular levies, special levies are raised by a vote of the Owners Corporation at a general meeting.
Preventative maintenance
The Owners Corporation has a statutory obligation to maintain and keep in a state of good and serviceable repair the common property of the Strata Scheme. The adoption of a Preventative Maintenance Program (PMP) is one way to avoid deterioration of valuable property. The PMP can also be referred to as the Sinking Fund Assessment and it provides a schedule of information about everything of value that could break down, wear out or deteriorate.
The benefits of a PMP are numerous and take into account long-term and larger scopes of work, for instance, planning ahead for regular works if you have property that is located near the ocean, or a property that has timber stained windows in full sun. Having a preventative plan in place to avoid or account for ‘major works’ in the future, can help you to remove the burden of unforeseen costs from the equation.
Dispute resolution strategies
Whether it concerns having pets on the premises, noisy parties, smoking within premises, damage to property, non-payment of levies or parking on common property, all sorts of disputes can arise between strata owners. If these disputes cannot be resolved informally, a polite letter from the Strata Manager or the Strata Committee may help to fix things.
Sometimes the dispute is between one or more owners and the Strata Committee or the Owners Corporation regarding the way in which the Strata Scheme is being run or about requests for permission for owners to carry out renovation or other works. Sometimes the dispute involves the Strata Committee or the Owners Corporation trying to get one or more lot owners to comply with by-laws or resolutions passed at meetings.
There are many ways in which Strata Schemes can end up embroiled in controversies. You might say that this is an inevitable by-product of people trying to live co-operatively together in close proximity whilst sharing the use of property.
However, if a solution is not found that way, a stronger dispute resolution strategy may be required. Mediation by a third party can be organised with the help of the NSW Office of Fair Trading. If this is unsuccessful, parties may have to apply to the NSW Civil and Administrative Tribunal (NCAT) for orders to be made that will dispose of the matter more formally.
The Golden Rule
One way for lot owners to minimise the risk of ending up in a dispute with the Owners Corporation over something like using common property or renovating a strata lot is to always ask the Strata Manager, before doing anything to their lot or bringing in a pet or leasing the lot or a car space to someone else, to find out what they must do to avoid falling foul of the rules governing the Strata Scheme.
How Craddock Murray Neumann Lawyers can help you
Sometimes the questions about a Strata Scheme can be complex and require legal advice. Over the years, the property team at Craddock Murray Neumann has assisted many clients in relation to strata schemes.
For more information on how our property lawyers can help you with strata schemes, please contact our team at craddock@craddock.com.au