What is strata title and why is it popular?
1961 was an eventful year. In 1961, construction was well underway on the Sydney Opera House. On 1 July 1961, the Strata Titles Act became law in New South Wales. On 28 July 1961, Strata Plan No 1 was registered. There are now more than 90,000 strata title schemes in New South Wales, and almost 200,000 across Australia.
What was so remarkable about the Strata Titles Act was that it was a world first. It introduced freely tradable land titles for apartments in a building, unlike the restrictive company titles system that was the only option up available until then. It is called strata titles because the building is divided into strata (or “layers”) with common walls, floors and ceilings separating the strata lots.
Freely tradable means just that – the permission of the other apartment owners is not needed to sell, transfer, mortgage or lease the apartment. For this reason, owning a strata apartment became just like owning a house, except that there are rules for community living, which are called strata by-laws; and payment contributions towards building expenses, which are called strata levies.
Strata title has become popular for a wide variety of properties: from villa homes and duplexes built side by side, to 3 storey ‘walk-up’ blocks, to multi storey high rise buildings with lifts, swimming pools, gymnasiums and rooftop barbeques. They can be shops, offices and factory units.
How does strata title work and what changes are comming?
All strata schemes use the same legal model. Each owner has their own legal title to their villa / home unit / apartment (the “strata lot”). Each owner has joint ownership of the building structure and the common property (entrances, stairs, paths and grounds) because they hold shares in the owners corporation (called “unit entitlements”). The owners corporation is a separate legal entity. It even has its own letterbox.
The New South Wales Government has now passed new strata titles laws to bring the Strata Titles Act up to date, to address strata management, strata by-laws, building defects, renovations and maintenance, and redevelopment. The new laws are contained in the Strata Schemes Development Bill 2015 and Strata Schemes Management Bill 2015. The new laws will commence on 1 July 2016.
This is a guide to the new laws.
A strata scheme is managed like a company, because the owners corporation of a strata scheme is a special form of company. The lot owners are like shareholders who meet annually and who elect a management committee which acts like a board of directors.
- The Annual General Meeting is when the annual financial statements of the strata scheme are considered, a budget and strata levies (for the administrative fund and the capital works fund – formerly known as the sinking fund) are agreed for the next year; the strata insurance is agreed (and it is decided if a new valuation is needed for the building); the strata manager is appointed; and the strata committee is elected. Repairs and maintenance are discussed and resolutions are passed to obtain quotations or to carry out the work.
The owners are invited to attend the meeting. If they are financial, they may vote. The new laws allow tenant representatives to attend, but they are not entitled to vote or to be present when financial matters are being discussed.
If a professional strata manager looks after the strata scheme, then the new laws provide that the strata manager is to be appointed for a maximum of 3 years, and cannot receive benefits over and above their commission. The 3 year limit is designed to make it easier to replace unsatisfactory strata managers.
The new laws allow the annual general meeting to be held at any time during each financial year, rather than on the anniversary of the registration of the strata plan.
- The Strata Committee is the new name for the Executive Committee. The members are elected by the owners at their annual general meeting to manage the owners corporation for the next year. The office bearers are the chairperson, the secretary and the treasurer.
In some strata schemes, the election of the strata committee is hotly contested. Committee members looking to be elected as office bearers gather up proxy votes before the meeting, from owners who cannot attend. The new laws limit “proxy vote farming”, as it is known. The limit is 5% of all votes if more than 20 lots, and 1 vote if less than 20 lots.
The new laws impose a legal duty upon strata committee members to act for the benefit of the owners corporation, with due care and diligence, like company directors. Officer’s liability is covered in the standard strata insurance policy, but the premium may increase because of the increased legal duty under the new laws.
- Dysfunctional strata schemes The new laws make it easier for owners to apply to NCAT (the NSW Civil and Administrative Tribunal) to deal with dysfunctional schemes by forcing elections, limiting decision making, requiring votes and issuing compliance orders.
In new medium and high rise strata developments built since the early 2000s, the developer will register a comprehensive ‘designer’ set of strata by-laws. For low rise strata, and for most strata schemes registered before the early 2000s, the applicable by-laws will be the model by-laws set out in the strata laws.
The strata by-laws can be changed by being added to, altered or removed. By-laws can give approval for renovations, the use of swimming pools and garden areas, installation of antennas and solar panels, and so forth.
Strata by-laws deal with keeping animals, car parking (especially visitor car parking), noise and behaviour of occupants and visitors, restrictions on children playing on the common property, restrictions on drying washing on balconies (where visible from the street), changing the appearance of the lot from the street (blinds and curtains need to colour match the rest of the building) and floor coverings (to prevent noise transmission).
- New Strata By-laws New model by-laws will be available. They will apply to new strata schemes where a comprehensive set of by-laws is not registered by the developer. The new model by-laws will not automatically apply to current strata schemes. They will only apply to current strata schemes if a special resolution (a 75% vote) is passed, at a general meeting of the owners, to replace their current strata by-laws.
The new model by-laws address several issues of concern which the current model strata by-laws do not cover. In particular:
- A limit of 2 adults per bedroom is to apply, to prevent overcrowding;
- Fines are to be imposed for parking illegally on common property;
- There is to be better noise control;
- Prohibitions against smoke drift from cigarettes and barbeques on balconies;
- Small pets are to be allowed, without approval.
- Notices of meeting may be sent by email, instead of posted or hand delivered.
- Voting will be possible through the post, electronically and through secret ballots.
The introduction of new model by-laws will present an excellent opportunity for all strata schemes to consider whether their current strata by-laws need to be updated. We will develop a template for strata schemes to compare the current model by-laws with the new model by-laws, to make it easy to decide whether new model by-laws should be adopted. The template will be prepared when the new model by-laws are released before 30 June 2016.
Building defects, renovations and maintenance
The owners corporation is responsible for maintenance and repair of the building and the other common property, because it is the owner of the building and the other common property. The definition of building includes the external walls, windows and doors, as well as the floors, ceilings and the roof. Building defects are the responsibility of the owners corporation.
- New Strata Buildings The new strata laws lay down a procedure to be followed for new buildings. They apply for 2 years after completion, when it is still possible for the owners corporation to pursue the builder to rectify the building defects, or to recover the cost of rectifying the defects. It has two parts:
- Building defects need to be identified and rectified. The initial meeting of the owners corporation is to be given an initial maintenance schedule by the developer. Obtaining initial building defects inspection reports is to be an agenda item.
- Funds need to be available to pay for defects rectification. The new law will require that the builder pay a building bond of 2% of the building cost to cover the cost of rectification.
The owner of a lot owns the skin of paint on the inside of the external walls and ceiling, the floorcoverings, and the services (water, drains, electricity, gas) from the point at which they enter through the wall / ceiling / floor.
- Renovations and maintenance by the owner The new laws clarify what work and renovations need to have the approval of the owners corporation, and what do not, as follows:
Cosmetic works inside the apartment, namely:
- installing or replacing hooks, nails or screws for hanging paintings and other things on walls
- installing or replacing handrails
- filling minor holes and cracks in internal walls
- laying carpet
- installing or replacing built-in wardrobes
- installing or replacing internal blinds and curtains (no change to the external appearance)
- are permitted without the approval of the owners corporation.
Renovations inside the apartment (known as minor renovations), namely:
- renovating a kitchen,
- changing recessed light fittings
- installing or replacing wood or other hard floors (floating timber floors, tiles)
- installing or replacing wiring or cabling or power or access points
- work involving reconfiguring walls, windows and doors
- renovating a bathroom
- installing an air conditioner
are permitted with the approval (a 50% vote) of the owners corporation at a general meeting.
Currently, the approval of all of the owners is needed to redevelop a strata scheme. The new strata laws make redevelopment of strata buildings easier.
Some buildings have deteriorated beyond repair because they have passed their useful life, others are sited on land which is valuable and could support higher density, and yet others are so badly damaged by fire, flood or earthquake as to be uninhabitable and need to be demolished.
The new laws will allow for redevelopment the building. Safeguards exist along the way, such as: there must be a collective sale / renewal plan which must be supported by at least 75% of the owners; the compensation payable will be for the whole building, and be payable according to the ownership shares; and the plan must be approved by the Land and Environment Court.
As the NSW Minister for Innovation and Better Regulation, Victor Dominello, said when the new strata laws were passed “Today more than two million people live and work in strata. The new laws will cater for the needs of 21st century strata living”.
Cordato Partners took part of the public consultation process for the new strata laws – submissions were made on reform options in November 2012 and on the draft strata bills in August 2015. We consider the new strata laws to be a great improvement on the current laws.