Strata title 

Strata title solves a problem the general law of land could not: how to give a person freehold ownership of a space inside a building — an apartment on the fourth floor — while the structure that supports it is owned in common. It is a statutory creation and does not follow general property principles by analogy.

Lots and common property

A strata plan divides a parcel into lots and common property.

A lot is the space defined by the plan, typically bounded by the inner surface of the walls, floor and ceiling. It is a separate parcel of Torrens land with its own folio. It can be sold, mortgaged, leased and devised like any other freehold.

Common property is everything in the parcel that is not within a lot — structural walls, the roof, foundations, stairwells, lifts, external pipes and cabling, gardens and driveways. It is owned by the owners corporation, or in some jurisdictions by the owners as tenants in common, in shares fixed by the plan.

The boundary between lot and common property is the single most important question in most strata disputes, because it determines who must repair and who must pay. It is answered by the plan and the statutory default, not by intuition about what "belongs" to an apartment. A balcony tile may be lot property while the waterproofing membrane beneath it is common property.

Unit entitlement

Each lot is allocated a unit entitlement, a number reflecting its relative value at the time of the plan. It determines:

• the share of common property attaching to the lot;
• the proportion of levies the owner must pay; and
• the voting power of the owner on a poll.

Unit entitlements can be challenged and re-allocated where they were unreasonable when allocated, but the threshold is high.

The owners corporation

Registration of the strata plan creates an owners corporation — a body corporate whose members are the lot owners, automatically and without election. Its functions include managing and administering the common property, maintaining and repairing it, insuring the building, keeping records and accounts, and enforcing the by-laws.

Day-to-day decisions are made by a strata committee elected at the annual general meeting, though significant matters are reserved to general meeting. Most schemes engage a strata managing agent, to whom functions may be delegated, and a building manager.

The duty to repair

The duty to maintain and repair common property is strict in most jurisdictions. The owners corporation must keep the common property in a state of good and serviceable repair, and it is no answer that it acted reasonably, or that it lacked funds, or that the owners voted against the work. In New South Wales the duty is s 106 of the Strata Schemes Management Act 2015.¹

Where a lot owner suffers reasonably foreseeable loss from a breach — water penetration from a defective common-property membrane being the classic case — they may recover compensation. This is why the lot/common property boundary is litigated so often.

An owners corporation may resolve not to repair a specific item, but only where the statute permits and the item does not affect safety or the appearance of the scheme.

By-laws

By-laws regulate the use of lots and common property. They are made by special resolution and take effect on registration. They bind the owners corporation, lot owners, and occupiers including tenants.

Limits on validity:

• A by-law must not be harsh, unconscionable or oppressive, and a tribunal may invalidate one that is.
• A by-law generally cannot prohibit or restrict the devolution or transfer of a lot.
• Restrictions on keeping animals are constrained in several jurisdictions, and a blanket prohibition may be invalid.
• A by-law cannot be inconsistent with the statute or with other law.

Common property rights by-laws confer exclusive use of part of the common property on a particular lot — a courtyard, a parking space, a storage area — and typically shift the maintenance obligation for that part to the benefited owner. They require the consent of the owner concerned.

Levies and the funds

The owners corporation raises money by levies on owners in proportion to unit entitlement. Two funds are maintained:

• the administrative fund, for recurrent expenditure — insurance, management fees, cleaning, minor maintenance; and
• the capital works fund (formerly the sinking fund), for capital and long-term maintenance expenditure. A ten-year plan must be prepared and reviewed, estimating future capital needs.

Money in a fund may only be spent on the purposes for which the fund exists, and transfers between funds must be repaid. Unpaid levies attract interest and are recoverable as a debt.

Disputes

Most jurisdictions channel strata disputes to a tribunal rather than a court, usually after an internal or mediated step. Common applications include orders to perform the duty to repair, invalidation of a by-law, orders about unit entitlements, appointment of a compulsory strata manager where the scheme is dysfunctional, and orders resolving disputes about exclusive use.

Insurance

The owners corporation must insure the building for its full replacement value, together with public liability cover and, in most jurisdictions, workers compensation and office bearers' liability. The premium is met from the administrative fund.

The building policy covers the structure and common property, and in most schemes the original fixtures within lots. It does not cover a lot owner's contents, improvements they have made, or their own liability as an occupier — those require the owner's own policy.

Where damage affects both lot and common property, the claim is usually made by the owners corporation under the building policy, and the excess is dealt with under the statute or the scheme's by-laws.

Applying this in a problem question

1. Locate the boundary between lot and common property before anything else, by reference to the plan and the statutory default.
2. Identify who bears the repair obligation, and check whether a common property rights by-law has shifted it.
3. Treat the duty to repair as strict, and address loss and foreseeability rather than reasonableness.
4. For by-law questions, check both the making procedure and the substantive limits.
5. Identify the correct forum, since strata disputes usually belong in a tribunal.

Self-check

• Have I resolved the lot/common property boundary from the plan rather than assuming?
• Have I applied a strict standard to the repair duty?
• Have I checked the by-law for procedural validity and for oppression?
• Have I used the correct fund for the expenditure in question?
• Have I directed the claim to the tribunal rather than a court?