What Strata Means
What strata means, how it works and what to look out for
In Australia, the two most common types of ownership are freehold and strata. Freehold is pretty straightforward – you own the land and the building. Strata, on the other hand, can be a bit more complex, and the way it works can vary from state to state.
What does strata mean?
Strata means a type of property ownership where different individuals own specific parts of a property – such as apartments – and also share in a company that owns the building. The company is called the body corporate – also sometimes known as the owners corporation, council of owners or strata corporation, depending on which state they’re in.
The most common example in Australia is an apartment complex, where individuals own the units, and the body corporate owns the land, common areas and the building itself.
How does strata work?
Strata works by dividing a property into separate ownership parcels called strata titles. They give the owner full residency and ownership rights to their particular apartment and, by voting at AGMs and other owners’ meetings, a say on how the overall property is managed. Strata schemes differ across Australia due to individual state laws and each state compiles their own guide like this NSW example.
Owning a strata title makes you a stakeholder or member, giving you the right to vote on major decisions, elect committee members to manage the regular operation of the corporation, and vote on by-laws of the property.
In a way, it’s a bit like an exclusive club open only to those who own apartments in the building. You pay a fee to the body corporate (usually quarterly or annually), and in return, the body corporate pays council rates and sewer charges, and covers the cost of maintenance, building insurance, staff wages (e.g. cleaners, gardeners, managers) and expenses for common areas such as electricity bills for lobbies and water for gardens etc.
While laws are specific to each state, strata schemes do share many similarities, such as the need for committee elections, various financial obligations and compulsory minimum strata insurance.
What do I need to consider when buying a strata title property?
Buying into a strata property can require a little bit more research than buying a freehold property, because there may be a few more conditions attached that could potentially impact your enjoyment of the property.
Here are 4 key things to check:
- Strata by-laws
Each strata property has its own by-laws in place. They can be quite simple, covering the use of common property, and any permission required to make changes or additions (such as an air conditioner etc.). However, they can also be quite complex, and cover things such as short-stay rentals, storage of items, when furniture can be moved in and out, using barbecues, decorating balconies etc. Always ask for a copy of the current by-laws before committing to buying a strata property. - Strata fees
They are mandatory contributions paid by owners with properties located in a unit, villa, townhouse or duplex complex. These can add a significant amount to an owner’s annual expenses – especially if the property has a manager or concierge, extensive gardens, a pool or lifts. Make sure you know how much the strata fees are for the unit you’re looking at, because many strata properties apply different rates to different units. - Strata finances
The strata fee you pay to the body corporate is often split between two accounts. The operating or administration fund is there to cover day-to-day and periodical expenses such as insurance, cleaning, gardening, management fees, council rates etc. A separate Capital Works Plan (NSW), sometimes referred to as a Sinking Fund Plan (QLD/NT/SA/ACT) or Maintenance Fund Plan (VIC/WA),can be optional or compulsory, depending on the state you're in. It's designed to cover the costs of major maintenance or improvement works – whether planned or in an emergency. Make sure you know how healthy the strata corporation's finances are – otherwise you may face ongoing costs you hadn't expected. - Insurance cover
All states require body corporates to carry strata insurance of some kind. At a minimum, it must cover the cost of building damage and repair, as well as public liability for personal injury or property damage that happens on common areas. But other events can also be very expensive to fix, and may not always be covered by compulsory insurance. Check the strata insurance policy and any optional cover that’s been included (or ignored), so you can be confident that if an expensive problem arises, you and the other owners won't be burdened with extra out-of-pocket expenses.
If you have any questions about compulsory or optional residential strata insurance, a good place to start is by giving Flex a call, as our offices know what is required in each state. Or check the state pages: