What is strata?
Strata, also commonly known as strata title or strata scheme, allows for individual ownership of part of a property called a ‘lot’. The lot itself can be an individual unit or apartment, townhouse or house.
As well as owning the lot, a strata-titled property owner also shares ownership of common property – such as gardens, lifts and driveways – with other lot owners.
All lot owners are members of the owners corporation, which may also be called the ‘body corporate’ or ‘strata manager’, depending on the state or territory in which you live and the type of scheme you’re buying into.
The owners corporation is responsible for the maintenance of common property, managing the finances of the strata scheme and taking out insurance for the scheme.
How does an owners corporation or body corporate work?
An owners corporation or body corporate typically meets several times a year to manage the building on behalf of all lot owners. While attending these meetings isn’t compulsory, they’re an opportunity for lot owners to help make decisions that can potentially impact the value and quality of the property you own.
By law, a body corporate must hold an annual general meeting (AGM) at which annual levies are set and the executive committee is elected.
The executive committee’s role is to make any necessary decisions on behalf of the owners corporation or body corporate.
How much does strata cost?
The owners corporation raises funds by collecting levies from lot owners in the form of strata fees.
You’ll typically see strata fees (or levies) specified in advertising material for properties as a quarterly figure. They can vary widely according to what you’re buying. A modern apartment in a complex with a lift, pool and gym, for example, is likely to have higher strata levies than a unit in an older-style building with no lift or on-site facilities.
It’s important when calculating your budget to factor strata fees into your ongoing costs as they can be significant.
What is a sinking fund or special levy?
Strata fees can also fluctuate according to whether a major maintenance project is being undertaken. A special or temporary levy may be added to cover, for example, the cost of replacing a lift.
A sinking fund may also be set up by the owners corporation or body corporate. This is where money is set aside over time to cover the costs of future capital works, such as painting the building or replacing the guttering.
It’s up to the owners corporation to decide how they’ll raise funds for capital works – whether through a sinking fund, special levy or other source.
The limitations of strata
Because you’re sharing property with other lot owners, you’re likely to have more restrictions on what you can do with your property compared with those who own a freestanding house. For example, you’ll most likely need to gain approval from the body corporate before starting any renovations.
If you do buy into a strata scheme, make sure you familiarise yourself with the relevant by-laws, which is the set of rules that all lot owners must follow.
Strata fees & property investment
The property owner is always responsible for strata fees. But it may be useful to seek tax advice on the deductibility of strata fees if you're a property investor.
Strata inspection reports
Your conveyancer or solicitor can arrange for and examine a strata inspection report on your behalf. This report outlines valuable information regarding your strata scheme’s history, funding, insurance and levies, as well as any evidence of building or structural problems that may lead to strata levy increases down the track.