BUYING AND SELLING A STRATA TITLE PROPERTY IN WESTERN AUSTRALIA

  • by AICWA
  • 10 Jul, 2023

By Peter Fletcher AICWA member at Rezzi

OVERVIEW

In Western Australia, a strata scheme is defined as a subdivision of a piece of land that allows one large freehold lot to be divided up into many smaller lots. Lots can be individual units, apartments, townhouses, or houses.

There are different types of strata.  Each has different rights, rules, obligations, documents and processes attached to them.

A strata property is different from a freehold lot. Strata owners share ownership and the costs associated with maintaining, repairing and insuring common property such as gardens, external walls, roofs, driveways and stairwells.

A strata scheme has its own set of by-laws.  These by-laws regulate the conduct of owners and occupiers of lots and set out the rules that govern the scheme.  Owners are restricted to what they can do to improve the property.  For example, anything that changes the exterior appearance of the property usually requires permission from the Council of Owners.

Every scheme has a strata company comprising the owners of the scheme.  It is governed by the Strata Titles Act 1985 (the Act), together with the Strata Titles (General) Regulations.

Larger strata schemes are administered by a Council of Owners.  The Council of Owners represents the interests of all the owners within a Strata Company. They make decisions about work to be undertaken, set the budget for the scheme and instruct the Strata Manager on how to proceed on implementing directions.

The Advantages of Buying into Strata Title

Buying into a strata title offers a range of benefits that make it an attractive option for property owners.

  • Shared Amenities and Facilities: Buying into strata title grants you access to shared amenities and facilities within the strata complex. These may include swimming pools, gyms, gardens, parking spaces, or community spaces. Enjoying these amenities without the sole responsibility for maintenance and upkeep can enhance your lifestyle and provide added convenience.
  • Cost Sharing: Strata title ownership allows for the sharing of common expenses among all the owners in the complex. This means that costs associated with maintenance, repairs, insurance, and management of common areas are divided among the strata community. This cost-sharing mechanism can help reduce individual financial burdens and make property ownership more affordable.
  • Professional Management: Strata schemes often employ professional strata managers who handle administrative tasks and ensure the smooth operation of the complex. These managers take care of various responsibilities, such as collecting fees, organizing repairs, managing disputes, and ensuring compliance with regulations. Having professional management in place can save you time, effort, and potential headaches associated with property management.

The Disadvantages of Buying into Strata Title

While buying into a strata title can offer numerous advantages, it’s essential to be aware of the potential disadvantages associated with this form of property ownership.

  • Lack of Control: As a strata title owner, decisions regarding the management and maintenance of common areas are made collectively through the owners’ corporation or body corporate. This means that individual owners may have limited control over certain aspects of the property.
  • Bylaws and Restrictions: Strata schemes have specific bylaws and rules that owners must adhere to. These may include restrictions on pet ownership, noise levels, renovations, or even the use of common areas. Failure to comply with these bylaws may result in penalties or disputes.
  • Potential Disputes: Living in close proximity to other owners can lead to conflicts and disputes over various issues, such as noise, parking, or maintenance responsibilities. Resolving these disputes can be time-consuming and may require mediation or legal intervention.
  • Limited Privacy: Living in a strata complex means sharing common spaces and walls with neighbors. This can result in reduced privacy compared to standalone properties.

Recent changes to the Strata Titles Act

In 2018, the State Government undertook a comprehensive review of strata title legislation and regulation.  Amendments to the Strata Titles Act 1985 (the Act), together with changes to the Strata Titles (General) Regulations 2019 came into effect on 1 May 2020.  

The Act was amended in order to:

  • address issues that have arisen due to the changing nature of strata schemes;
  • introduce a new form of land ownership (leasehold strata title schemes); and
  • modernise the language and structure of the Act.

Who is affected by the changes?

Individuals most affected by the amendments include:

  • Sellers of strata property
  • Prospective buyers
  • Real Estate Agents
  • Settlement Agents and Property Lawyers

What has changed?

Under the new provisions:

  • Strata managers will be better regulated and made more accountable.
  • Overall management of the strata company will be improved.
  • Owners will have more of a say in the running of their scheme.
  • Better ongoing maintenance of schemes will be facilitated.
  • Enforcing by-laws will be easier.
  • Strata disputes will be resolved quickly, cheaply and effectively through a single specialist forum.
  • Buyers will receive better information about the strata lot they are buying.
  • More flexibility in the staged subdivisions of strata and survey-strata schemes will be permitted.
  • Safeguards will be introduced for the termination of schemes.
  • Owners will be empowered to improve and retrofit their scheme to benefit from renewable energy sources.

ESSENTIAL INFORMATION FOR SELLERS

To improve transparency and accountability, the amended Act has changed the obligations for the owner of a strata property. Before a contract can be agreed or signed, the seller must provide prospective buyers with:

  • the seller’s name and address;
  • scheme notice, scheme plan, scheme by-laws (including those not yet registered) and schedule of unit entitlements;
  • the name and address for service of the strata company;
  • strata lease documentation for the lot, if it is a leasehold scheme; and
  • minutes of the most recent annual general meeting, any extraordinary general meeting and the latest statement of accounts.

In Western Australia, the majority of strata schemes are 4 lot schemes or less. These are governed by less prescriptive record-keeping rules. For example, two lot schemes do not have to keep minutes, and three, four and five lot schemes may opt-out of that requirement by way of resolution.

In circumstances where the strata company does not keep minutes of its meetings or prepare a statement of accounts, or if the seller is unable to get a copy, the seller must provide a statement outlining why these documents are not available.

Buyer specific information

The seller must provide specific information about the lot, including:

  • copy of the scheme plan marked with the location of the lot with defined boundaries;
  • unit entitlement of the lot, and unit entitlements for all lots in the scheme;
  • contributions payable by the owner (amount and due date), if determined by the strata company in the last year; or
  • a reasonable estimate of any contributions payable after the proposed settlement date;
  • details of any debt owed by the owner of the lot to the strata company (including how the debt arose, the date and the amount outstanding);
  • details of any exclusive use by-laws that apply to the lot; and
  • any other information required by the regulations.

If the lot has not yet been created, the seller must provide:

  • the latest version of any draft scheme documents, with amendments relevant to the lot;
  • a reasonable estimate of unit entitlement;
  • estimated contributions payable.

Additional information is required in circumstances where:

  • the strata titles scheme has not been registered;
  • the first annual general meeting has not been held;
  • the scheme developer owns 50% or more of the lots in the strata titles scheme; or
  • lots with an aggregate unit entitlement of 50% of the scheme.

If these circumstances apply, the buyer must be notified of:

  • estimated strata company income and expenditure for the 12 months after the proposed settlement date;
  • details of any remuneration or benefit associated with the contract;
  • any disclosures the scheme developer has made to the strata company;
  • any proposed or existing contracts for the provision of services or amenities;
  • costs, terms and conditions for any lease or licensing agreement; and
  • any court or tribunal proceedings connected with a contract for the sale of a lot.

Under the new amendments, the seller must prove the required information was provided.

If a notifiable variation occurs after the contract is signed, the seller must inform the buyer in writing as soon as practicable (up to 15 days prior to settlement) or within 10 working days of becoming aware it.

The notification must include information (that a reasonable person would consider enough) to let the buyer make an informed assessment about whether they are materially prejudiced by it.

If a court or tribunal proceeding arises in relation to a notifiable variation that happens after the contract is signed, it is the seller who has to prove that proper notice was given to the buyer.

Failure by the seller to disclose notifiable variations or meet the conditions set out in the Strata Title Regulations, may delay settlement or render the contract void. In circumstances where the contract is avoided, the buyer may recover any deposit or money held under the contract.

ESSENTIAL INFORMATION FOR BUYERS

Under the Act, prospective buyers will benefit from better clarity and transparency.  Buyers will benefit from more detailed information which provides a clearer picture of the ‘health’ of the strata scheme. This information will support the buyer to make more informed decisions prior to purchase.

Information will include:

  • The name and address of the seller
  • Agreed expenditure – estimated contributions a buyer will have to pay in the 12 months after settlement.
  • The minutes from the most recent AGM.
  • A statement of accounts of the strata company.
  • Any debts owing against the lot to the strata company.
  • Whether the lot has the benefit of exclusive use by-laws.
  • Information about any termination proposal received by the strata company

If the strata company does not keep minutes of its meetings or prepare a statement of accounts, or if the seller is unable to get a copy, the seller must provide a statement outlining why these documents are not available.  It’s important to note a seller must give a buyer this information before a contract for the sale of a lot in a strata titles scheme is signed.

Why have these changes been made?

The changes allow buyers to:

  • Budget for future strata levies.
  • Understand the level of cooperation and harmony (or otherwise) between the strata company and the council of owners.
  • Understand and budget for planned major upgrades, including the possibility of additional strata levies.
  • Gain an understanding of the financial viability of the strata company through the statement of financial position.

What the seller must disclose

The seller must provide specific information about the lot, including:

  • copy of the scheme plan marked with the location of the lot with defined boundaries;
  • unit entitlement of the lot, and unit entitlements for all lots in the scheme;
  • contributions payable by the owner (amount and due date), if determined by the strata company in the last year; or
  • a reasonable estimate of any contributions payable after the proposed settlement date;
  • details of any debt owed by the owner of the lot to the strata company (including how the debt arose, the date and the amount outstanding);
  • details of any exclusive use by-laws that apply to the lot; and
  • any other information required by the regulations.

If the lot has not yet been created, the seller must provide:

  • the latest version of any draft scheme documents, with amendments relevant to the lot;
  • a reasonable estimate of unit entitlement;
  • estimated contributions payable.

Additional information

Additional information is required in circumstances where:

  • the strata titles scheme is unregistered;
  • the first annual general meeting has not been held;
  • the scheme developer owns 50% or more of the lots in the strata titles scheme; or
  • lots with an aggregate unit entitlement of 50% of the scheme.

If these circumstances apply, the buyer must be notified of:

  • estimated strata company income and expenditure for the 12 months after the proposed settlement date;
  • details of any remuneration or benefit associated with the contract;
  • any disclosures the scheme developer has made to the strata company;
  • any proposed or existing contracts for the provision of services or amenities;
  • costs, terms and conditions for any lease or licensing agreement; and
  • any court or tribunal proceedings connected with a contract for the sale of a lot.

Under the new amendments, the seller must prove the required information was provided.

If a notifiable variation occurs after the contract is signed, the seller must inform the buyer in writing as soon as practicable (up to 15 days prior to settlement) or within 10 working days of becoming aware it.

The notification must include information (a reasonable person would consider enough) to let the buyer make an informed assessment about whether they are materially prejudiced by it.

Ten-year maintenance plan

New amendments require all schemes of 10 lots or more, or schemes with a building value in excess of $5 million, to have a 10-year maintenance plan and reserve fund.

The Strata Company or a contractor is required to develop a list of common property elements that are expected to require maintenance, repair, renewal or replacement in a 10-year period.

This information assists owners to set reserve funds, assessing how much will be required over time, and informing the buyer on future expenditure.

ESSENTIAL INFORMATION FOR REAL ESTATE AGENTS

The Government review of the Strata Titles Act 1985 (the Act) is complete.  Amendments to the Act together with the Strata Titles (General) Regulations 2019 came into effect on 1 May 2020.

This major overhaul of strata legislation in Western Australia will apply to contracts from 1st May 2020.

New disclosure requirements

To comply with amendments to the Act, there are new disclosure requirements for sellers.  While disclosure requirements relating to the seller, not the salesperson, it’s important for Real Estate professionals to understand the changes so that they can provide their clients with expert advice and guidance.  Importantly, Forms 28 and 29 have been replaced by one new form the “Pre-contractual Disclosure Statement to the Buyer”.

Additional information requirement

The seller is required to provide specific information about the lot, including:

  • copy of the scheme plan marked with the location of the lot with defined boundaries;
  • unit entitlement of the lot, and unit entitlements for all lots in the scheme;
  • contributions payable by the owner (amount and due date), if determined by the strata company in the last year; or
  • a reasonable estimate of any contributions payable after the proposed settlement date;
  • details of any debt owed by the owner of the lot to the strata company (including how the debt arose, the date and the amount outstanding);
  • details of any exclusive use by-laws that apply to the lot; and
  • any other information required by the regulations.

Before a contract can be agreed or signed, the seller must provide prospective buyers with:

  • the seller’s name and address;
  • scheme notice, scheme plan, scheme by-laws (including those not yet registered) and schedule of unit entitlements;
  • the name and address for service of the strata company;
  • strata lease documentation for the lot, if it is a leasehold scheme; and
  • minutes of the most recent annual general meeting, any extraordinary general meeting and the latest statement of accounts.

Seller disclosure compliance

Larger strata schemes (6 lots or more) employ a Strata Manager to keep records on behalf of the strata company.  Strata managers often have an owner portal where an owner can log into their account to access the minutes and financials.

Owners in smaller schemes may find it difficult to access the required information.  Two lot schemes do not have to keep minutes, three, four and five lot schemes may opt-out of that requirement by way of resolution. Given the recent changes, many of those schemes will not have passed that resolution.

If the required documents are not available, the seller can make a statement as to why the minutes and financials are not available. This Pre-contractual Disclosure Statement to the Buyer forms part of the contract and must be attached to the disclosure statement. The Real Estate Industry of Western Australia (REIWA) has created a pro forma document which can be accessed here.

Contracts

Failure to comply with disclosure requirements before the contract is signed means a buyer may avoid a contract for the sale and purchase of a lot at any time before the settlement date for the contract.

If the seller receives information after the contract has been signed and fails to provide the buyer with information or a document that would disclose material prejudice, the buyer can avoid the contract.  The burden of proof lies with the buyer.

If the seller gives the buyer a notice substantially complying with section 156 before the buyer avoids the contract under this section, the buyer may avoid the contract under this section only if the buyer does so within 15 working days after the seller’s notice is given to the buyer.

What constitutes an Offer and Acceptance (O&A)

All attachments referred to in the disclosure statement must be included in the O&A as annexures.  Documents must be given prior to the buyer entering into the contract. Request proof such as an acknowledgment from the buyer or retain the email record showing when the disclosure statement was sent. If the disclosure statement is only given to the buyer at the point in time immediately prior to signing the O&A then all attachments must be included with the disclosure statement.

Providing documents electronically

Documents may be provided to the buyer via electronic means if the buyer has consented to receive notifications electronically or a contract signed digitally.

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