What is Strata?
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A common question with regards to property is ‘what is strata?’
Strata or Unit title allows individual ownership of part of a property (called a ‘lot or unit’ and generally an apartment, townhouse or commercial/retail unit), combined with shared ownership in the remainder (called ‘Common Property’ e.g. foyers, driveways, gardens) through a legal entity called the owners corporation — or body corporate, strata company or community association, depending on the type of scheme.
The concept only came into being 50 years ago and there are now more than 270,000 such schemes encompassing more than two million individual lots across Australia. In Sydney, strata now accounts for more than half of all residential sales and leases because of its popularity with investors. An increasing number of commercial and retail properties are also strata titled. In Western Australia there are even strata-titled vineyards. While on a smaller scale, there are currently 2.2 million land titles in New Zealand, with Unit Titles being 8.5% or 184,000 titles; a $40 billion sector!
Developments that can exist under strata plans can be:
mixed use – i.e. retail and/or commercial and/or residential
The History of Strata Title
Prior to strata title, many flats were sold as either company title, where shares in a company that owns a building entitle a shareholder to the exclusive use of a particular residential unit, or the land on which a building was constructed was sold to make the owners Tenants In Common. This is a type of co-ownership where two or more people own separate interests in a parcel of land. Legal documentation ensured that a purchaser obtained exclusive use of their residential unit.
However, these forms of land title do not confer separate ownership on individual occupants, and banks and building societies weren’t then keen on lending money to such purchasers, with the interest rates generally higher than for houses.
Another common form of shared land ownership was a Cross Lease Title. In a cross lease, all owners (known as “Lessors”) are ‘tenants in common’ and own an equal share in the land and will have exclusive use of a unit/flat or area. You may also have exclusive use of an additional area such as a carport or garden, and this will be noted on your certificate of title.
In a cross lease, the rules are under your Memorandum of Lease (MOL). This MOL will record the obligations and requirements of all cross-lease members and sets out how decisions are made.
The building on the land (referred to as “flats” or “areas”) is leased from all the land owners to the individual owner (known as “Lessee”) who owns that particular flat or area. It is important that the “flats plan” accurately reflects what is physically on the land. If there are alterations to a flat or exclusive use area that are not shown and the footprint is now different than the “flats plan” this may be considered defective and cause the owners issues
The concept of strata title originated in Australia and in 1972, the Unit Titles Act was adopted in New Zealand.
The development of larger and more complex strata developments has brought the management challenges of operational complexity, rising costs, ageing infrastructure, owner engagement, tenant responsibilities, and the need for appropriate support services.
The growth and increasing sophistication of strata mirrors the history of the companies and organisations like Strata Community Association (ACT) which have arisen to address its administrative challenges.