What is Strata?
Strata refers to a system of ownership whereby a building is divided into portions known as ‘lots’. The building can be an apartment block, a complex of townhouses or villas, commercial offices and so on. In addition to each individual lot, each owner also shares ownership of the common property which usually encompasses foyers, gardens, stairwells, driveways and external walls. Each individual lot owner is responsible for maintaining their own property however, the common property needs to be maintained collectively by all the lot owners through levy payment systems. Enter, the Owners Corporation.
The Owners Corporation comprises of each lot owner in the Strata Scheme and they are responsible for administering, controlling, and maintaining all areas of the Strata Scheme.
Under the NSW Strata Schemes and Structures Management Act 2015 the Owners Corporation is responsible for the upkeep and maintenance of all common areas in the Strata Scheme. These common areas may include lobbies, lifts, hallways, shared laundry facilities and even luxury assets such as golf courses and swimming pools. They must also ensure that fire safety measures are maintained throughout the building. In addition to these responsibilities, the legislation also dictates that the Owners Corporation must make a record of all meetings that are held, and must retain accounting and financial statements of all transactions.
On the administration side, the Owners Corporation must also keep a Strata Roll recording the name of each lot owner in the scheme. The Strata Roll contains general information regarding the Strata Scheme including the postal address and Strata Plan Number of the Scheme, the names of anyone renting a lot in the Strata Scheme, building insurance details and any rules that the Owners Corporation has agreed to put in place to maintain harmony amongst residents, such as parking restrictions and noise curfews (called ‘by-laws’).
As some Strata Schemes can comprise of upwards of 20 lots, it would be impractical to involve each and every lot owner for the purposes of working out ‘who will trim the roses this week’. Enter, the Strata Committee.
The Strata Committee consists of individual lot owners who have been elected at each Annual General Meeting (AGM). The Committee is predominantly responsible for running and overseeing the day-to-day administration and governance of the Strata Scheme. Within the Strata Committee there are three positions/office bearers who must be elected, these are:
- Chairperson – Who must preside at all meetings of the Executive Committee. It’s important to note however that the Chairperson doesn’t have a casting vote under any circumstances;
- Secretary –Who is responsible for preparing meetings, providing notices, answering correspondence addressed to the Owners Corporation and generally doing all administrative and secretarial duties for the Owners Corporation and Strata Committee; and
- Treasurer – Who is responsible for giving notice of any levies, keeping all accounting records, preparing financial statements and section 184 certificates, and taking care of all of the general banking and account management for money paid to the Owners Corporation.
Many of the Executive Committee’s responsibilities are similar to those of the Owners Corporation. However, while the legislation holds the Owners Corporation responsible for completing the duties outlined above, the majority of these day-to-day duties are delegated to the Executive Committee.
The only additional responsibilities of the Executive Committee are the administrational duties fulfilled by the Chairperson, the Secretary and the Treasurer, as outlined in the section on the Owners Corporation.
Levies and Special Levies
In addition to the original purchase price of the lot, members of the Strata Scheme are also required to pay levies that contribute to the upkeep of the common areas and structural parts of the building. If you’re a lot owner, it’s in your best interests to pay as without them, the building would fall into disrepair and consequently the market value of your lot could be attected.
Levies are usually paid quarterly and are divided into two types of funds:
- Administrative Fund – This fund is allocated to pay the day-to-day running expenses of the Strata Scheme such as common property water and electricity bills, repairs, gardening, etc;
- Capital Works Fund – This fund is used to pay both expected and unexpected large-scale maintenance costs. Ideally, the amount retained in this fund should be large enough to cover any unexpected expenses – for example, roof repairs, painting.
In some circumstances the funds raised in the quarterly levies may not be enough to cover unexpected, essential expenses. If this occurs, a third type of levy must be raised in addition to the previous two levies:
- Special Levies – This levy is issued when the administrative fund and capital works fund don’t contain the required funds to pay for an essential expense such as weather damage to the roof. If the expense is non-essential, it may be postponed until the next quarterly levy is issued.
To avoid deterioration of valuable property, you may want to discuss the adoption of a Preventative Maintenance Program (PMP) with your Strata Manager. The PMP can also be referred to as the Sinking Fund Assessment and it provides a schedule of information about everything of value that could break down, wear out or deteriorate.
The benefits of a PMP are numerous and take into account long-term and larger scopes of work, for instance, planning ahead for regular works if you have property that is located near the ocean, or a property that has timber stained windows in full sun. Having a preventative plan in place to avoid or account for ‘major works’ in the future, can help you to remove the burden of unforeseen costs from the equation.
Dispute resolution strategies
Whether it’s pets on the premises, noisy parties, damage to property or parking problems, an array of disputes can arise between strata owners. The quickest avenues to resolution are always the friendliest. Try talking through the problem ‘face-to-face’ and perhaps the misunderstanding will be easily resolved. Don’t underestimate the power of a kind conversation with a neighbour. Alternatively, a polite letter from the Strata Manager or the Strata Committee may also help.
However, if things progress and a resolution doesn’t seem like it will easily be reached, a stronger dispute resolution strategy may be required. Mediation by a third party can be organised with the help of the NSW Fair Trading. If this is unsuccessful, parties can seek further relief through an application to the NSW Civil and Administrative Tribunal.
Strata management solutions
Having a Strata Management Agent with a lot of experience behind their agency will make for more efficient and structured management. A solution to avoiding excess costs and monitoring time management can be as easy as putting control in the hands of a professional.
Good strata management comes from careful monitoring and carrying-out of all the ‘behind-the-scenes’ work such as maintaining records and financial documents, as well as liaising and coordinating with appropriate authorities, lawyers, tradespeople and specialists. Maintaining a Strata Scheme involves a myriad of management tasks, and a professional with knowledge and experience can make life a whole lot easier for you.
For more information on strata schemes, please contact our Commercial Property team.
Disclaimer: The information provided in the document is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.