Apartments Are A Well-Regulated Purchase
No matter the asking price, buying an apartment is a big investment both financially and emotionally.
Following last week’s suggested check-list of key questions that any apartment buyer should ask about the apartment itself, this week let’s take a look at some important pointers that I always suggest every apartment buyer should explore once they find an apartment to buy. Each of points relates to the body corporate and how a building is or will be managed in the future.
All of the questions are important for one key reason and that’s because they can impact the quality of life you enjoy when living in an apartment. They are concentrated on how your building is managed, maintained and functions on a daily basis.
What we need to remember is that apartment living is much more about living in a community where residents will have shared interests and often shared facilities in practical terms what this means can be summarised in the following key points.
Living in a strata scheme:
You own your apartment and you share ownership and responsibility for common property. When you own your apartment, you automatically become a member of the owners corporation (OC) which has responsibility for common property and makes key decisions affecting your buildings’ strata scheme.
Every owner then has to contribute to the cost of running the building by paying quarterly levies that cover the cost of running and maintaining a building. Levies are also collected and paid into a capital works fund, for future long-term expenses. However, beyond these mainly financial obligations there will also be lifestyle restrictions in a strata scheme.
What you own in a strata scheme:
One major difference when you own an apartment (a lot) is that the external walls, the floor and roof do not usually belong to you. These areas are usually common property and are the responsibility of the owners corporation. It’s essential to understand that you cannot alter or renovate these areas without permission from the owners corporation.
Before buying into a strata scheme, make a detailed study of the strata plan to understand the boundaries between common property and your individual lot. And remember that effectively, as the lot owner you will generally own the ‘airspace’ inside the boundary walls, floor and ceiling of your lot.
Owners corporation and executive committee:
It’s important to note that all lot owners in a strata scheme are automatically part of the OC.
The OC should hold regular meetings to decide the issues of the scheme, while the elected strata committee will make certain decisions on behalf of the OC, or in reality on behalf of all owners with due care and diligence by adhering to strict disclosure requirements. When you buy into an established building gain access to previous minutes as a good way of learning more about your future building.
The future or registered strata scheme plan details the unit entitlement for each lot, which vary between apartments. It is very important for any lot owners to know their unit entitlement because this determines your part-ownership in the common property, the levies payable, and your voting entitlements.
You have to pay levies:
All lot (apartment) owners have to pay regular contributions to the OC to cover the maintenance and administration and to help save funds for future wear and tear. Make sure you understand your liability for these charges. There is an administrative fund for day-to-day expenses and a capital works fund for short and long-term items of a capital nature.
The OC must estimate how much money is needed each year in advance and take into account anticipated major expenditure over a 10-year plan for the capital works fund.
What your levies pay for:
Levies can be a sensitive issue as they are a regular and ongoing cost for every owner. A good way to think of levies is that the OC has the same type of expenses and costs as an average householder. Expenses like water and electricity charges for common areas, building and public liability insurance and repairs and maintenance of common areas, such as painting the common property, or looking after fixtures or fittings.
There can also be other costs such as workers compensation, building valuations and audit costs. When buying and apartment it’s important to pay close attention to the quality and finishes of a building, because it all has to be must be maintained including things like a swimming pools, lifts, tennis courts, saunas, gyms etc.
An OC can vote to introduce a ‘special levy’ when there are insufficient funds to cover un-expected expenses or large capital works. When buying into an established building it’s very wise to check if there’s any possibility of a special levy being raised or anticipated.
Strata managing agents:
Apartment buyers are advised to check and ask about how their building is or will be managed. The OC can manage the strata scheme itself, or engage a strata managing agent. It’s worth remembering that only a person who holds a strata managing agent’s licence under the Property Stock and Business Agents Act 2002 can be appointed.
By-laws – so important:
This is a big area because the by-laws are a set of rules that all people living in a strata scheme must follow and they can impact some aspects of your ongoing lifestyle.
By-laws are made to cover a wide range of issues. Strata schemes can adopt model by-laws that are set out in the Strata Schemes Management Act 2015, they can amend and adopt these model by-laws, or they can make their own. Before buying and apartment, you’d be wise to check all by-laws, it would be foolish not to, even more so if you have never lived in an apartment before.
Signing an apartment contract:
Buyers can seek professional advice before buying an apartment, including inspecting records, and your solicitor can always help with this, or you can inspect the records yourself. The OC must make their records available following payment of a modest fees which is usually done through the strata manager.
An owner, (useful to give buyers) you can write to the OC and ask for a section 184 certificate that will give extensive information about the strata scheme including: committee members, any managing agent and building manager, levies and any outstanding levies (if a levy is outstanding before the certificate is given and not detailed on the certificate, a buyer is not responsible those levies) and the capital works plan.
As by-laws are important the certificate also details any by-laws made by the OC within 6 months. The certificate must us the form prescribed by the Strata Schemes Management Regulation 2016 – Schedule
A well-regulated purchase:
Despite all of the rules and the way strata schemes are very well-regulated, when buying an apartment, it’s common sense to appreciate that no check-list can cover every aspect of such an important purchase, and different strata schemes will always vary.
However, to make an informed choice when deciding to buy an apartment, like any property, it is essential to ask the right questions and ask as many questions as you like so that you feel happy and comfortable with your purchase. Engage with your solicitor and other professionals to ensure that you have all the facts as levies, by-laws and understanding your lot entitlements are essential items that may well impact your future home.