Understanding Strata

As a New Owner you would like to know more about "what is strata?".

(Disclaimer: The information provided in this website is a general guide only and not intended as a substitute for proper legal advice. Seek professional legal advice before taking any action. The company BCS Strata Management disclaims all responsibility and all liability for any expenses, losses, damages and costs which might be incurred as a result of the information provided by the company on this website.)

On this page:

Strata Title

The concept of strata title, is where people own and have title to individual lots (units or apartments) within buildings or complexes. This was originally devised in New South Wales in the early 1960s and is actually an Australian innovation in property law that has been copied around the globe.

In Strata Title you own your unit or apartment as well as sharing ownership and responsibility for ‘common property’ (e.g. foyers, driveways, gardens) through a legal entity called the owners corporation - or body corporate, strata company, community title or community association, depending on your state or territory of residence and the type of scheme.

Developments that can exist under strata title can be residential, commercial, retail, industrial, mixed use (retail and/or commercial and/or residential), serviced apartments, retirement villages, caravan parks and resorts. They can range in size from two lots to over 700 lots.

NSW Fair Trading administers the Strata Schemes Management Act 1996, which sets out a framework for the management of strata schemes by their owners and establishes a dispute resolution process. Download Fair Trading's Strata living booklet (PDF size: 505kb)

Strata Scheme

The owners corporation is responsible for the good management of the strata scheme. All owners can vote on management decisions at an Annual General Meeting (AGM), but decisions are usually made on behalf of the owners corporation by an executive committee of owners who are elected at the AGM. Some strata schemes also manage the day-to-day financial, maintenance, and other administrative duties themselves, but given these are complex, most choose to use the services of a professional strata manager.

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What do I own in a strata scheme?

The major difference between owning a house and owning a unit or apartment (known as a ‘lot’) in a strata scheme, is that the external walls, the floor and roof do not usually belong to the lot owner. These areas are usually common property and the maintenance and repair of these parts of the building is usually the responsibility of the owners corporation.

As it is common property, the lot owner is not able to alter or renovate these areas without the permission of the owners corporation. In effect, in most strata schemes, the lot owner owns the inside of the unit but not the main structure of the building. Usually the four main walls, the ceiling and roof and the floor are common property. The dividing walls within the lot (for example, the wall between the kitchen and lounge room), floor coverings such as carpet and fixtures such as baths, toilet bowls, bench tops are all the property of the lot owner. The key concept to remember is that the lot owner effectively owns the airspace (and anything included in the airspace) inside the boundary walls, floor and ceiling of the lot. Airspace can also extend to balconies and courtyards. You should get proper advice about ownership contact your strata manager or for questions about boundaries of the lot and clarifying common property, contact Land and Property Information NSW (LPI) at www.lpi.nsw.gov.au or call 1300 052 637.

What is Common Property?

Common property is all the areas of the land and building not included in any lot. It is jointly owned by all owners, and the owners corporation is responsible for its management. The lot and common property will be defined on your individual strata plan.

A Common property is that part of a Strata Scheme that is owned by everybody, not any one individual. In order to pay for maintenance of common property, the owners corporation has to raise funds from all individual lot owners through regular payments of levies (an amount of money decided by the owners corporation).

Read SCA NSW - " Who is Responsible - A guide to common proprty"

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Community Title Schemes

Community title is structured as property which has been divided into individual lots. This may include strata schemes and/or Torrens Title lots, with common areas and shared services. In some States, additional sub-classes of communities may also be included, for example in NSW, neighbourhood associations and precinct associations can also exist within a community association.

Part of this means creating designer lifestyles that include tennis courts, swimming pools, country clubs and parks. The complexity of these developments incorporates not only the common property, but also the common services and additional responsibilities that go with the community common areas and non-common property. Generally community title schemes are responsible for their own roads, parks and gardens maintenance, garbage collection and potentially delivery of some utilities. Their funding comes from levies which are then used to run the scheme the same as strata schemes.

What is Owners Corporation?

The owners corporation is a legal entity made up of all the owners in the strata scheme. Each lot owner is automatically part of the owners corporation and has a right to participate in the decision making. The owners corporation comes into existence immediately after a strata plan is registered.

An owners corporation operates like any other business. It can make rules which are binding on the corporation, owners and tenants regarding the use of common property and the lots, providing that the rules do not contravene legislation governing strata titles or other laws.

It is undeniable that the success of an owners corporation is dependent on committed and informed members who participate in meetings, 'own' the decisions that are taken, and are willing to resource and support the long term maintenance and management of the property.

Responsibilities

Owners corporation have a legal responsibility to:

  • Maintain all common property including the structure of any buildings on the land
  • Insure the whole of the property for the full replacement value
  • Administer the finances and common funds of the group of owners
  • Administer the secretarial functions including the conduct of meetings of members, documentation of minutes, and dealing with all correspondence
  • Resolve disputes involving members of the owners corporation and enforce the owners corporation rules.

The owners corporation also has a responsibility to maintain proper records, including financial records, orders served, and minutes of meetings.

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What is the Executive Commitee?

The administration of an owners corporation may be undertaken on behalf of all the lot owners by an executive committee. This consists of a small group of lot owners who are elected yearly at the Annual General Meeting (AGM) of lot owners. A executive committee must ensure state strata law and its own by-laws are adhered to. It also has the ability to change existing by-laws and make new ones. The executive committee can make many of the day-to-day decisions about running the scheme on its behalf. However, the owners corporation can overrule executive committee decisions or limit what they can make decisions about.

Office bearers of an Exceutive Committee

Chairperson
The chairperson’s main duty is to preside over all owners corporation and executive committee meetings and make sure they run smoothly.

Secretary
The powers and duties of the secretary include:

  • preparing minutes of meetings and putting a motion to confirm the previous minutes
  • issuing notices for the owners corporation and its executive committee, that are required under the Act
  • keeping the strata roll
  • giving information on behalf of the owners corporation under section 108
  • answering correspondence addressed to the owners corporation
  • convening meetings of the owners corporation and its executive committee (apart from its first AGM)
  • all the administrative and secretarial duties for the owners corporation and the executive committee.

Treasurer
The duties of the treasurer include:

  • providing owners with notice of any levies
  • issuing receipts, banking and accounting for any money paid to the owners corporation preparing any Certificates under Section 109
  • keeping all accounting records and preparing the financial statements.

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Strata Manager and what do they do?

An owners corporation has the power to engage a strata manager, building manager or caretaker to help it perform various functions. The size and complexity of the scheme will determine which one of these they appoint.

Unlike a caretaker or building manager; a strata manager’s role is mainly administrative. Owners corporation and its executive committee should play a proactive role in the running of the building complex, and encourage the ongoing need to work closely with their strata manager.

Strata managers are professionals who are responsible for the administration of owners corporations. Depending on the state and territory, they are also called owners corporation managers, body corporate managers, strata managing agents, managers, and agents. It is their task to ensure buildings and common areas within a strata titled or community titled scheme are properly maintained for the benefit of all lot owners. They follow specific instructions issued by the Executive Committee.

Strata Managers are specialists in their field, possessing the knowledge and skill to administer the owners corporation in accordance with the complex requirements of the particular state-based legislation. They also work to achieve consensus in decision making by the lot owners, and to otherwise assist the lot owners by assuming onerous responsibilities.

Specific duties
Strata managers are involved in coordinating the affairs of lot owners including conducting meetings, collecting and banking levies, arranging property maintenance, advising on asset management, placing insurance and keeping financial accounts.

Their duties include:

  • Maintain the records of the owners corporation as required by law which includes the strata roll and other statutory records
  • Prepare budgets, quarterly and annual financial reports and keeping all accounting records required to prepare such reports
  • Arrange for the preparation and submission of income tax returns on behalf of the owners corporation
  • Implement credit control procedures in respect of the maintenance contributions
  • Have possession of and care for the records and documents of the owners corporation
  • Enforce the by-laws strictly as directed by the owners corporation
  • Pay accounts and outgoings in accordance with the instructions of the owners corporation and the agreed terms
  • Ensure that insurance policies are effected, provide adequate cover and are promptly renewed as required by the Strata Schemes Management Act.
  • Promptly attend to any insurance claims that may arise
  • Arrange and attend the annual general meeting of the owners corporation – which includes serving the notices of the meeting, and preparing and distributing the minutes of the meeting
  • Ensure the strata scheme complies with all the Work Health & Safety (WHS) regulations
  • Arrange as required by the owners corporation; the day to day maintenance and repairs to the common property
  • Act as secretary and treasurer of the owners corporation and carry out the functions required of these officers by the Strata Scheme Management Act
  • Provide advice and assistance to the owners corporation in regard to matters relating to the affairs of the strata plan. In particular this relates to advice on strata titles legislation relating to meetings, management and accounting decisions
  • Have custody of the common seal and attest to its affixation
  • Generally implement the decisions of the owners corporation

Engaging a strata manager that is a member of Strata Community Australia (SCA) is an important step to ensure the professional and compliant administration of a strata scheme. Strata legislation is complex and designed to protect the interests of its lot owners.  A strata manager who knows the legislation well can prevent inadvertent errors which can be made by self-managing owners. Members of SCA practising as strata managers are required to keep abreast of all changes in the relevant legislation through a program of continuing professional development and also maintain professional indemnity insurance. Not least, they are required to adhere to an ethical Code Of Conduct.

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What is a levy?

In accordance with the owners corporation regulations a lot owner is required to contribute to the owners corporation, in order to meet expenses which include council rates, water and electricity charges for common areas, building and public liability insurance, and repairs and maintenance of common property. In a strata scheme, there may also be additional costs to do with the running of the scheme such as fees for a strata managing agent, workers compensation insurance or building valuations.

Who determines the amount of the levies?

Owners Corporation contributions to Owners Corporation costs are calculated in accordance with the lot liability as set out by the surveyor of the property when the strata plan was created. In order to cover the costs of expenses, the law requires that each owners corporation establishes an administrative fund and a sinking fund and raises levies from owners. All levies must be charged in proportion to the unit entitlements of each lot. Levies are determined by the owners at the Annual General Meeting (AGM).

Who issues the levies?
The owners corporation at the AGM instruct the strata manager to issue the levies, usually quarterly in advance.

What is a Sinking Fund?
The sinking fund is for the costs of future capital expenses. The amount in the fund must be enough to cover standard and unexpected capital expenditure items.

Where does all the Levy money go?
All of your levy monies are deposited into your scheme’s individual trust account and divided into two (2) funds:

Administration Fund which covers the following items (amongst others):

  • Regular maintenance
  • Insurance of the building and common area
  • Pool maintenance (if applicable)
  • Postage and stationery
  • Minor building repairs
  • Strata manager/administration
  • Legal obligations
  • Pest control (of common grounds) etc
  • Electricity for common area lighting and facilities
  • Water usage
  • Caretaker/On Site Manager

Sinking Fund which covers the following items (amongst others):

  • Repainting
  • Roofing replacement
  • Guttering replacement
  • Driveway repairs
  • Fence installation
  • Major plumbing repairs
  • Resurface pool (if applicable)
  • Pool/shade cloth installation (if applicable)
  • Capital expenditure items
  • Lift upgrade of replacement etc.

Non-payment
Levies must be paid by the due date. Lot owners cannot object to a levy by not paying it. In NSW, the owners corporation can impose a charge of 10%
simple interest for levies not paid within 1 month of their due date. The owners corporation can also take debt recovery action through the local court.

Click here for more information on Levy Administration.

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Insurance

The owners corporation has an obligation under the Act to insure the common property against damage or destruction by fire, explosion and other specific occurrences. It also has an obligation to insure the building for its true replacement value. Periodically, the strata manager will arrange a building replacement cost valuation to ensure that the insurance cover is adequate.

The insurance policy, arranged in the name of your plan in most instances, covers the structure of the property and does not extend to cover privately owned fixtures and fittings in any unit e.g. carpets, paint, curtains, blinds, light fitting or other electrical appliances which are not built into the lot and can be removed without interference to electrical wiring. It is very important to be aware that under the Strata Schemes Management Act 1996, each owner is responsible for their fixtures and fittings (carpets, paint, wallpaper, light fittings etc.), regardless of how the damage was caused. Therefore we strongly advise that you insure your contents against loss or damage from such events beyond your control. 

If you are renting your lot, for your protection, we recommend that you arrange Landlord’s Fixtures and Fittings cover and include public liability for the area inside your unit.

By-Laws

All strata and community schemes have by-laws. These by-laws are rules that the owners and tenants in a strata scheme must follow. These can be changed at an AGM of the strata scheme.

To learn more about By-law and Standard By-laws Vist Here

All by-laws are not the same, so you should obtain a copy of the current by-laws for your Owners Corporation scheme or Strata Manager.

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Alterations to Common Property

Please be aware that it is a breach of the model by-laws of the Strata Schemes Management Act 1996, for an owner to make alterations to his/her Lot which affect common property without first seeking the approval, in writing, of the Owners Corporation. If in any doubt at all, please contact your strata manager so that they can advise you of the correct procedure.

Who is responsible for what in Common Property? Click on link to read docment from SCA.

Repair & Maintenance

The Owners Corporation has a responsibility under the Act to look after the common property. This is part of your asset, therefore if you become aware of an item of common property that requires repair, please contact your strata manager immediately so that they can arrange the necessary contractor.

Repairs to the common property are paid for from the Administrative Fund. Long-term replacements or renovations such as painting, gutters, fences, stairwell carpets etc., are paid for from the Sinking Fund, therefore it is very important to make sure that Sinking Fund levy contributions are set at a realistic level.

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Meetings

Almost all scheme decisions are ultimately made by executive committee or owners corporation in meetings. Owners need to know meetings are being held and what is to be considered so that they can decide what they want to do (and how). The integrity of meetings and the decisions made at them affects the reliable operation of schemes. Meetings are one of the more critical scheme activities.

All states require schemes to have at least one meeting per year for owners – the Annual General Meeting (AGM), but the notice period varies. And, if special or unanimous resolutions are involved the notice period is usually longer. Some states prescribe the things that must be considered at annual general meetings. And, there are limits in most states as to how far apart annual general meetings can be held. For more information download Fair Trading's Strata living booklet (PDF size: 505kb)

Voting

The lot owners as part of the owners corpration run strata schemes by exercising their right to vote on decisions in meetings. So, the right to vote, the extent of their vote and the kinds of decisions made are a key feature of lot ownership. Every state gives each lot one equal vote on basic decisions (if no poll is called or required). But some states limit the maximum number of votes a person can hold or the maximum number of proxies a person can hold.

In New South Wales some kinds of proxies cannot be used by developers.

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What are Proxies?

When a lot owner cannot attend meetings, they have the option of appointing a substitute representative by proxy. This allows owners to have their say in all circumstances. But proxies need controls to ensure that the representation is valid and accurate. In NSW there is a prescribed proxy form. Some states also require the form to be given to lot owners with the meeting notice.

And, in most states the proxy form can be submitted anytime up to the start of the meeting (and even at the meeting).  In large schemes in New South Wales proxies need to be delivered before the meeting date.

Disputes

In strata and community it often means that people of diverse interests and backgrounds are brought into close contact and sometimes disagreements and disputes arise. Hopefully, most can be sorted out by the people involved by talking about the problem and through developing tolerance and an understanding of others.

The first step towards resolving a problem is communication and to make every attempt to talk to the other people involved. When disputes cannot be resolved informally, there is a more formal process of dispute resolution set out by the Strata Schemes Management Act 1996.

Check also the Fair Trading's Strata living booklet for more information on disputes (PDF size: 505kb)

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(Disclaimer: The information provided in this website is a general guide only and not intended as a substitute for proper legal advice. Seek professional legal advice before taking any action. The company BCS Strata Management disclaims all responsibility and all liability for any expenses, losses, damages and costs which might be incurred as a result of the information provided by the company on this website.)