The cost efficiencies of living in a unit or villa can be an attractive option if you are downsizing or looking to minimise capital outlay on a home purchase, but it is essential to be aware of what you are getting into when you enter a strata title arrangement. To help you weigh up the pros and cons, we have set out some key issues to help you make the right choice for you.
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Strata vs freehold ownership
The majority of residential property in Australia is based on freehold title, otherwise known as Torrens title. Freehold means you solely own the land and buildings on the property and can do what you want with it, within council building and usage guidelines.
The major difference with Strata title is that you are sharing ownership of the land with other unit holders. You have sole control over the internal elements of your unit, apartment or villa, but all of the external aspects of your dwelling and all of the shared land and facilities on the property are treated as ‘common property’. This includes things like walls, roofs, stairwells, driveways entrance halls and community facilities.
The control and maintenance of these common areas is managed through a ‘body corporate’ which is the collective name for all of the owners on the property. The owners will normally elect an executive committee to carry out these duties. The body corporate has the power to make decisions on common property and levy fees to maintain those areas.
This collective arrangement and shared financial responsibility means that if you are considering purchasing a strata unit you should carefully check the financial state of the body corporate to make sure you are not buying into problems or financial commitments that you can't support.
How do costs compare?
The advantage of freehold title from an upkeep point of view is that you hold sole control over how much you spend on upkeep and when you spend it.
Want privacy and control over your property? Then a freehold title is a good option
While rates and utilities will need to be maintained regularly, you have the freedom to delay spending on discretionary items such as repairs, gardens and pool areas.
A strata scheme has the benefit of these types of costs being shared across all the owners, but the body corporate has control over how much is spent and when. All the owners are obligated to contribute agreed fees to cover these costs and the level of these fees are usually determined at an annual general meeting.
Strata fees generally fall under two areas:
- An administrative fund for ongoing maintenance, rates, cleaning, gardening and other day to day expenses, and;
- A sinking fund for long-term future expenditure on major repairs or improvements, such as roofs, lifts and major structural issues.
These fees are usually levied on a quarterly basis. Occasionally, a ‘special levy’ may be required to cover any large unforeseen expense. Such a levy will still need the approval of a majority of the body corporate.
What happens if disputes arise?
The very nature of a strata scheme means that disputes or disagreements may arise from time to time. These may vary from trivial issues right up to major breaches of strata rules.
Handling of such disputes can normally be addressed through reasonable face to face discussion, which will often avoid misunderstandings. In many cases the issue may simply be a breach of the strata rules that the person in question was not aware of.
If discussion does not resolve things, the body corporate can make a written request to the member in question, detailing the specifics of the issue, expected actions to rectify it and consequences of non-compliance. If the dispute persists then a third party mediator can be employed to attempt resolution, although this will incur cost for both parties. As a last resort the matter can be taken to a state government adjudicator or administrative tribunal to obtain a legally binding resolution.
Strata owner responsibilities
While the body corporate and its elected executive committee are responsible for management of the upkeep, finances and administration of the strata.
Strata titles are managed by a resident-formed body corporate
The owners also have to abide by certain responsibilities including:
- Paying your rates, taxes and levies on time
- Letting the owners corporation know if the owner or occupiers change
- Complying with by-laws
- Behaving in a way that doesn’t offend other residents and;
- Not altering the lot without the owners corporation and the local council’s consent
The bottom line
Strata title can certainly hold financial advantages compared to freehold title, via lower purchase cost and shared upkeep costs, but it is important to recognise that it is a shared situation where compromise is needed and a commitment to the strata rules and financial impositions is essential for avoiding hassles. This may suit many people, but can be quite confronting for those who have lived most of their lives with free reign over their own freehold property.
If considering moving to a strata situation you should do your homework on the history of the strata management and any financial commitments or looming issues that it may have. Get some legal assistance to help you ask the right questions and assess any issues so that you can avoid surprises.
What have been your experiences with strata title ownership? Share your thoughts below.