This is the transcript of the video discussion about the things you need to know when buying a strata title property in WA. This conversation is between Daniel Eigenmann, Capita Finance and Shane White, Strata Title Consult.
Daniel: If you’re looking to buy a property in the next few weeks or months, there is a good chance you will be buying into a strata title property. If you are buying into strata, it is important you understand the difference between strata and freehold.
To answer this important question, I’ve invited Shane White to talk to us about strata. Shane is Director of Strata Title Consult and describes himself as a solution finder and problem solver with over 30 – 40 years experience in the industry including working for Landgate for about 30 years.
I’m asking Shane questions about strata because it is important that you understand what it is you are buying into.
So Shane, if I am a first-time buyer and I see the property I really like is a strata title property, what do I need to understand and what is different?
Shane: A strata title property is very different from owning a freehold property in that you are governed by a particular act called the Strata Titles Act which has bylaws and a Strata Plan that defines what it is that you own. If you are not familiar with looking at a Strata Plan than get someone who is to explain it to you.
The bylaws determine how meetings are conducted, the election of Council Members, but also the other half of the bylaws are more concerned about the behaviour or conduct of the owners within the strata scheme. You can’t just do anything you feel like doing like changing the appearance of your lot, changing the colour or adding alterations to the building.
Daniel: Can I have a pet if I want to?
Shane: It is very important that you find out if there is a No Pets Bylaw. Unless you come under one of the exemptions for guide dogs or assistance animals, you would not be permitted to have a pet so it’s best to find that out first.
Daniel: So if I’m looking at buying into a strata property, I need to be aware of what the bylaws are. And basically, bylaws are a set of rules. In strata, there are restrictions because one of the biggest difference with a strata title property is that you live among other people in close proximity. This means you need to be mindful and respectful of other people. These rules are put into writing, and these are called the bylaws.
Now, if I’m buying into a strata title property are there any documents that I should be provided if I’m looking to make an offer?
Shane: It’s most important that you receive a copy of the strata plan because that will determine what the boundaries are for the buildings on the strata scheme. Those buildings may be the responsibility of the Strata Company to repair or otherwise, they may be your responsibility to repair. Now, if the obligation to repair is within the strata company’s responsibility, they will incorporate that repair cost into the levies for the strata scheme.
Daniel: So levies are obviously something else I need to be aware of. So what is a levy?
Shane: A levy is an amount of money that is raised at an annual general meeting through a budget that allocates money for certain expenses that are the day to day expenses during the year for the administration fund and there may be an allocation of additional money to a reserve fund for future contingency expenses.
Daniel: So that is something I, as an owner, need to pay? Is that usually on a quarterly basis? Known as strata fees or levies?
Shane: The Act refers to these as a strata levy.
Daniel: I deal with lots of first home buyers and I see them going through home opens and the question is always “what are the strata fees?” Is there a risk in associating lower strata fees with a better buy?
Shane: If you were comparing different strata schemes and worked out how the fees compare, you can get an idea of how much per quarter it costs to run strata schemes of the same size and quality. If a scheme has abnormally low levies, it may be an indication they are not accumulating enough funds for future repairs to the strata scheme or they haven’t allocated any money for repairs that are required through that year.
Daniel: So what happens if they don’t have enough money to pay for the repairs we are talking about?
Shane: It means, as a purchaser, you are walking into a possible increase in levies through special levies.
Daniel: So it means, I will need to more? My share of whatever it costs to do that?
Shane: The share will be determined by the unit entitlement values and if you’ve got a bigger unit, you might pay a lot more than someone with a smaller unit.
Daniel: So you really need to go into a strata title property with both your eyes open. You need to understand the difference. There are great opportunities, but you need to be aware.
OK, so the agent should provide copies of the bylaws, the strata plan and what else?
Shane: The minutes from the last Annual General Meeting, or any other Extraordinary General Meetings that have transpired since the last AGM because that will give you an indication of the topics that have been discussed during the general meeting and if those items of business have been addressed and if they have raised funds to fund any items of a repair or maintenance nature.
There may be ongoing problems in the building that they are trying to resolve but they haven’t got sufficient funds to fix them. There may be an indication that a special levy may be invoked at a later time during the year, and you need to be aware of this.
You are buying into any existing problems which are in the strata scheme that you may have to fund the repairs to.
Daniel: So when you buy a property and you engage a Settlement Agent, their job is to transfer the title from the seller to the buyer, but it is also to look at any other fees that the seller has occurred that go past the settlement time. Is an extra levy something that the new buyer would be liable for?
Shane: Generally, whatever the levies are due say a quarterly levy was payable then if the current owner has paid it up front they would be entitled to be reimbursed the unused portion and they would be refunded that amount in settlement. If a special levy was due and payable during the period of that quarter than the existing owner may be responsible to pay prior, although it would come out of the settlement fee. Any ongoing continual payments would be payable by the new owner when they become due.
Daniel: Now, few buyers would be lawyers and most people fall asleep after the first sentence of a legal document but if I realise I need to be aware of what I am buying into and what my responsibilities are, what my level of ownership and my regulations are, where do I get help?
Shane: You can contact any number of strata consultants that are around. I’m available to provide information on interpreting the strata plan and your responsibilities under the bylaws. It’s important that you understand what you are buying into and those bylaws will determine how you act and conduct yourself whilst you are an owner in a strata scheme.
Daniel: Would a settlement agent be able to help with that as well?
Shane: A settlement agent can provide you with a copy of the bylaws. Whether they have a good understanding of interpreting a strata plan? Some do and some don’t.
If levies are low, that is a good indication that either the building is not being maintained properly there is no allocation of funds for future repairs. If you do a comparison of that scheme to another of equivalent size and their levies are $500 more per quarter, it may be that they are working to save money for future repairs and are actively involved in maintaining the strata scheme as a whole. That would include the painting of the scheme, the roofs, the driveways, the gardens, and any other works they may need particular to that strata scheme. It is an indication that they are putting money away.
Your copy of the General Meeting minutes will indicate that a certain amount of money is being put away for a reserve fund and that’s why the levies are higher.
Daniel: As a buyer, I can ask those questions: Why is it high? Why is it low? I just need to know which questions to ask.
When the agent provides you with the documents we’ve discussed, make sure you have a look at them and make sure you ask the questions.
We are looking to provide you with information about what’s involved in buying a strata property. The likelihood of you buying strata is increasing. Local Government has big plans for strata title property and it is pretty much the way of the future. You need to know what you are buying into.
Shane: Definitely! Your financial obligations and your behavioural obligations.
If you have any questions either post below in comments or get in touch with Shane. He’d be happy to respond below.
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- Seller’s Duties of Disclosure under WA’s Strata Title Reforms
- WA: Q&A Strata Search – What Information Is Available When I’m Buying Strata?
- How bad can things go with buying strata property
This post appears in Strata News #248.
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