If you’re looking to purchase an apartment or townhouse, it’s important to be aware of the additional fees and charges you’re likely to pay towards the shared maintenance of the development you purchase into. Vantage Strata Group General Manager Jarrod Smith shares the ins and outs of strata fees and what to look out for when purchasing in a complex or off the plan.
What is a strata?
A strata connects homeowners in environments where there are shared or common areas, such as apartments or townhouse complexes.
The Body Corporate, also sometimes known as an Owners Corporation, is the forum that administers the maintenance and upkeep of shared areas and gives owners a voice in agreeing on decisions relating to those common areas. Often, owners will outsource the management of the shared aspects of their complex to a strata manager, such as Vantage Strata.
“All eligible owners in the development would be able to nominate to join the Executive Committee,” Jarrod explains.
“That Committee acts as the key governing body, that decides how funds are spent, and manages any complaints or issues from owners and tenants in the complex.
“There might be sub-committees as well, looking at specific issues such as a gardening committee for example. The owners then liaise with the strata manager or building manager, who actually administers the maintenance, communication and upkeep of shared areas.”
What types of buildings are governed by a strata and what are the common or shared areas that they manage?
There are two classes of developments that are governed by a strata. Class A developments are generally high rises, and Class B are generally townhouse villages. A good way to think about it is, does the home you’re looking at share a wall, ceiling, driveways or access areas with other homes? If so, it likely falls into one of these classes.
Common areas are any area of the development that is used by all residents, and can extend to driveways, waste facilities, gardens, common outdoor entertaining areas, etc. The fees you pay to the strata cover the maintenance, repairs and upkeep of these areas. These fees usually cover building insurance as well.
When you purchase a property in a development titled as a Strata, you’ll receive a site plan that indicates what the shared areas are, and what your property line is within those. This is a good guide as to what is your individual responsibility versus something covered by the strata.
How are strata fees calculated?
At the point of development, the strata fees are determined for new owners.
Jarrod explains: “When the building is being constructed, a licenced valuer will review the development and have a look at each unit or townhouse and its different attributes to calculate the owner’s unit of entitlement. Some units will have a much larger unit of entitlement because they might have more bedrooms or car spaces, etc. Once they calculate all the unit of entitlements, they basically divide each one against the budget and then determine the allocation for each owner.”
It’s a legislative requirement that your estimated strata fees for two years are disclosed to buyers purchasing off the plan.
Fees typically are split into two amounts – an administrative fund which pays for the day-to-day expenses of maintaining the property and a sinking fund, which is to offset major expenditure that may arise. For example, your sinking fund may pay for major repairs, or a driveway needing to be replaced etc. The annual budget is set at the Annual General Meeting of the Owners Corporation, which any eligible owner can attend.
Strata management fees are generally taken out of the admin fund.
How often do you pay strata fees?
“It’s very standard approach for most Class A and B developments to charge strata levies quarterly, because it’s nice and easy for the cash flow and it’s easy for unit owners to get used to a habitual quarterly payment. But you can make it weekly, monthly, daily. You can make it every six months. You can make it once a year – it’s up to the Owners Corporation,” Jarrod says.
Are there other costs to be aware of when purchasing a townhouse or apartment?
“There are a couple of things to be aware of, and the first is that if you’re purchasing a brand new apartment or townhouse, you won’t be expected to pay into the sinking fund for the first year – so you need to be aware that your strata levies will increase after that initial 12 month period,” Jarrod says.
One of the main reasons for this is because the typical defect liability period, which provides a warranty for many of the amenities and materials is for 12 months, so after that period the strata takes on the repairs and maintenance of those elements, in full. So you’ll start paying to the sinking fund, which you’ll see as a separate line item on your levy invoice and the maintenance the development is responsible for will also increase.
“The other thing to be aware of, if you’re purchasing an already-established home that is part of a strata, is whether or not the previous owners’ fees are up to date. If not, you may be liable for paying levies in arrears. It’s a good idea to have your conveyancer check all of this ahead of your purchase,” Jarrod says.
“Also remember that the strata will cover the building insurance, but you need to have home and contents insurance of your own. And if you rent your property out, you also need landlord’s insurance.”