Common Misconceptions of the Two-Lot Strata

21 NOV 2019

 

What is a ‘Strata-Scheme’?

Since 1961, Australia has adopted the ‘strata system’ for governing the ownership of a 'share' of a building or structure. Strata schemes (also known as ‘strata title’) allow for individuals to purchase and own a portion of shared residency, including residential townhouses, units and villas, along with commercial offices, factories, warehouses and shops.  

The purchasers of these portions, or ‘lots’, also buy into the common property, including the gardens, driveways and common areas of the residency. The Strata Schemes Management Act 2015 (the ‘SSMA’) is the legislative body governing strata schemes. The SSMA categorises all strata schemes into either ‘large’ schemes (over 100 lots) or ‘other’ (between 2 and 100 lots) schemes.

The nature of Two-Lot Strata

When strata schemes are as small as only two lots, it is aptly known as a ‘two-lot strata’ scheme. For as common as two-lot strata schemes are, there are a number of misconceptions regarding their ownership, duties and obligations.

Owners Corporation

Under the SSMA, strata owners are typically responsible for the formation of an ‘owner’s corporation’ or ‘strata committee’, which is a body that maintains the common property, manages finance and insures the residency. That said, when the strata scheme is two-lot, the two owners automatically form the Strata Committee or Owner’s Corporation (section 30(3)). This removes the need for the owners to hold an election or formal processes. Therefore, in the case that an owner sells their property, the Committee automatically dissolves and forms a new committee with the new owners.

Capital Works Fund

Strata Schemes generally have a requirement for an established ‘Capital Works Fund’ (previously known as the ‘sinking fund’). This fund, contributed to by the owners, acts a financial pool for major capital expenditures for the building. Under section 74(5) of the SSMA, owners of two-lot strata can decide (through unanimous resolution) not to have a Capital Works Fund if the buildings in the scheme are physically detached from each other, and there are no additional buildings or common property in the scheme. You should note the exemption only applies to the Capital Works Fund and not the Administrative Fund, which the owners must still have.

Building Insurance

Unlike larger strata schemes, under Section 160(4) of the SSMA, building insurance is not compulsory for a two-lot strata scheme where the two buildings of the scheme are physically detached. Again, you should note that both owners must unanimously agree to forgo insurance. Each owner then has the ability to independently insure their lot if they choose to. However, this exemption also only applies when there are no additional buildings on the common property in the scheme.

Conclusion

Overall, strata schemes, whether large or small, are a complex yet rewarding type of property ownership.

Should you currently own, or are looking to acquire a property which is part of a strata scheme, please contact our Property Law Department to ensure your rights and obligations are being protected and upheld.

 

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.

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