Galsworthy

Q & A: About Strata Title

1. What is the difference between a Body Corporate and Owners Corporation?

None. They are different names for the same thing. Owners Corporation is the official name for the owners of strata units in NSW acting as a group to vote on matters related to their building.

2. How do I join?

You become part of the Owners Corporation, whether you like it or not, when you buy a property within a strata plan. How you get INVOLVED, if that's the question, is by turning up and voting at General Meetings, especially the annual general meeting (AGM), and possibly getting voted on to the Executive Committee (EC).

3. So what's the Executive Committee?

A group of up to nine elected members of the Owners Corporation. It can also include non-owners who have been nominated by an owner who doesn't wish to stand for the EC, like your lawyer, letting agent or the co-owner of a unit whose partner is already on the EC.

4. What qualifications do they need?

Absolutely none to stand and be elected. They can be mentally defective bankrupts with a criminal record for all the Government cares. When you consider they could be looking after budgets in excess of $1 million in larger blocks, that's a bit scary.

5. OK, so what should they have?

Good ECs have people with a combination of skills and talents and the spare time to use them. In a large building a good and fair-minded Chair, an organised Secretary and a numerate Treasurer who can read a financial spreadsheet are vital.

6. Do they get paid?

They can't be paid an allowance, for instance, on a weekly or monthly basis, but they can be given some financial remuneration for the previous year's work at the next AGM.

7. So why would anyone do it?

The good ones do it out of a sense of community and a desire to protect their financial and emotional investment in their home. The best candidates are usually too busy making money to pay off their mortgages to spare time on committees. The bad ones do it because they have nothing better to do (although that often means they also have little to contribute. The really bad ones do it because they want the building run to suit them and/or to protect the interests of their developer mates?

8. Isn't that last bit a little paranoid?

All over Sydney developers are keeping tight rein on buildings from which they have sold most or all of their apartments. The easiest way to do this is to make sure the office bearers are onside with them. Even better, they get their mates on the EC to sign them up to manage the building for the next 10 years. In the USA, for instance, the maximum length of a building management contract is ONE year. Now you know why developers are among the biggest contributors to Labor and Liberal party funds.

9. OK, OK. Back up. Who are the office bearers and what do they do?

The Chair runs the meetings but doesn't have a casting vote. A good chair lets everyone have their say but doesn't let meetings go on endlessly. The Secretary calls the meetings and arranges for the agendas and minutes to go out. Recent legislation means that agendas and minutes have to go our within specific periods before and after EC meetings. The treasurer keeps an eye on the finances and may even be given the job of approving invoices before the are paid. In smaller blocks one or all of these jobs may be done by a strata manager.

10. What is a Strata Manager?

A strata manager is a qualified agent who basically does all the paperwork for the building. They receive bills, pay them, send out levies notices and bank them.

11. Is that the same as a Building Manager?

No. The building manager is someone who looks after the building – usually one of the big ones – on a daily basis. Large apartment blocks are like hotels. They have staff, equipment, rules of conduct, car parking, security – someone has to look after all that and that person is the building manager. By the way, State legislation only refers to a “caretaker” – one of the many throwbacks to the days when a handyman would be given cheap rent in a small block in exchange for changing the lightbulbs, sweeping the stairs and taking out the bins. There are no laws relating to building managers because officially they don't exist.

12. What are levies?

Levies are the owners' contribution to the running and long-term maintenance of the building. Things like lifts, electric light bills, pool maintenance and cleaning of the Common Property all have to be paid for. In the long term, money has to be put in a ”sinking fund” to pay for repairs on the building in the future. Recent changes to the law means all buildings will eventually have to have 10-year Sinking Fund plans.

13. What's common property?

What isn't? Obviously lifts, lobbies, stairwells, communal facilities and the roof are collectively owned but there's a lot more. Basically when you buy an apartment you own everything inside the “skin” and everything else is common property. So, for instance, in the case of the external walls of your apartment, including adjoining walls, you own the paint on the walls but not the actual walls themselves. You own the carpet but not the floor (so you have to ask if you want to put floorboards down) the lights but not the ceiling. The inside sills are yours but not the windows, and probably not the balcony or the doors to it either. You own the inside of your front door but not the outside (try painting it a different colour and see what happens). Even the door closing device on a lot of apartment doors is common property because it is part of the fire safety of the whole building. The easiest definition, if a little abstract, is that you own the air space inside your apartment

14. Why should I have to pay for the future maintenance of a brand new apartment block?

Because all buildings deteriorate over time. If you're in a free-standing home it's relatively easy for a prospective purchaser to see problems that might arise in the future and adjust their offer accordingly. In strata blocks it's all too easy pretend there are no problems and sell up before they become obvious. That means that the next buyer cops the cost of all the wear and tear you have enjoyed. Even worse, unsuspecting owners without a spare cash can be hit with special levies to fix serious problems and some even have to sell rather than face the bill (at a reduced price because of the levies, naturally).

15. What if I don't want to pay a special levy or I think the levies are too high anyway?

There's not much you can do. By law, your responsibility as an owner (and therefore member of the Owners Corporation) is unlimited. But you do get to vote to change the people on the EC if they are making bad decisions. The main point is, anyone who buys into an apartment block thinking they only have to pay their mortgage is deluding themselves.

16. How much are levies?

Depends on how big your apartment is, how many facilities there are in the block and how well managed it is? If you've got a studio flat in a block with no lifts, pool, gym or concierge, your levies should be quite low. If you're in the sub-penthouse of a block with lots of lifts, a heated pool, sauna, fully-equipped gym and 24-hour concierge you could be $20,000 – $30,000 a year. But a reasonable benchmark is 1 percent of the value of your unit. The worst case is being in a large flat in a small block with a lot of lifts and expensive services.

17. Who works out how much I pay?

Right at the start of every strata plan, it establishes the Unit Entitlements – basically a set of points related to the size and position of your apartment (hence its loose connection to the value of the apartment). When the building's budget for the year is done, everyone has to pay their share according to the number of unit entitlement “points” that they have. The more you own, the more you pay. It's worth remembering, however, that your Unit Entitlements can also come into play in a tight vote at a general meeting. If a show of hands is close, the owners can call for a vote based on UEs – so the more you own means the bigger say you get.

18. How do I get on the EC?

Either by being voted on at an AGM or by co-option when a seat falls vacant. In smaller buildings there are often not enough candidates to fill all nine seats so sometimes just by volunteering yourself you get straight on without a vote. Co-option happens when someone sells out of the building or resigns between AGMs. The remaining members of the EC don't have to replace that person but if they want to they can do so by invitation. They and the new members come up for re-election every year.

19. Who gets to vote?

All owners of “lots” in the strata plan – could be an apartment, a parking spot, a café underneath or a townhouse in a retirement village – provided they are “financial”. That means that if you want to vote for or against anyone and anything, you have to make sure your levies are up to date to the last cent. But if you're “financial” you get to be a player. This is important, by the way. Many critical votes in some building have gone the wrong way because their supporters were sometimes as little as a few cents in the red.

20. If everyone gets to vote, how can developers' “mates” run ECs?

The first year is the critical time. Once the big contracts have been signed in the first few months of an Owners' Corporation's life, the damage has been done. A 10-year building management contract will be in place before most of the owners have moved in and realised what's going on. By that time it's too late. The building may have serious defects but don't expect the one person who should know what they're looking for to be busting a gut to find them – at least not if they are employed by a subsidiary or a close associate of the people who'll have to pay millions to rectify it. And that 10-year contract will pretty much take care of the six-year limit on defects claims. Also, many absentee owners simply give their proxy votes to the chairman or secretary because they quite reasonably assume that these people aren't going to do anything to harm the building. But if they work for the developer or have already been promised the pick of their next apartment block, the needs of the other owners may well be the last thing on their minds.

21. Hasn't the government recently reduced the length of these contracts?

Yes. From 20 years to 10. Ironically, you go and try to get a 10 year contract out of the State Government for anything and see what response you get. The simple answer is one-year contracts like they have in the USA. If the managers perform well they get another contract. If they don't – byeeee!

22. So what your saying is, don't buy an apartment and if I'm in one, sell now?

Absolutely not. Apartment living is the way of the future - how else are you going to get a café, pool, gym and, hopefully, a pleasant social life under your own roof. But our politicians need to get their heads out of Picket Fence Land and realise their priority is to build communities rather than fattening developer donors wallets. Australians are traditionally independent and we love our quarter-acre blocks. If we're going to move into apartments – and the Government wants another million Sydneysiders to do that in the next 10 years – they have to start looking after us, the people who are paying for all this, rather than their mates who are raking in the profits and passing on a slice for the party coffers.

23. If this is such a problem, why do you never hear about it?

Who's going to raise it or report it? This stuff never makes it on to the news pages because the victims are frightened it will affect their property values. Very few journalists understand it and the rest glaze over at the thought of it. Like most politicians, they don't think real people live in apartments. The people who should be raising the roof are politicians but with both mainstream parties bought off by developer donations. The powers that be do a very good line in portraying ECs as busybodies and power hungry litigation addicts who are forcing little old ladies out on to the streets with their crazy levies. The truth these days is that they are young professionals who want to live closer to work and empty nesters who've made their money, raised their families and want to enjoy everything a city like Sydney can offer.

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