Are Small Strata Fish Sweeter?
Or, should we just throw them back into the sea …
Is it time to think differently about micro strata buildings? There’s a lot of them, they often don’t follow strata laws and many regulators and other strata stakeholders want to let them off the hook. So, here are my thoughts and ideas.
Introduction
2, 3, 4 and 5 lot strata buildings are very common in Australia.
In fact, the last reliable analysis of strata building numbers [the UNSW City Futures 2018 National Data Report – Supplementary Material] revealed the following things about micro strata schemes.
More than half of Australian strata buildings have 5 lots or less.
The percentages of 5 lot or smaller strata buildings in each state range from a low of 53% in NSW to 88% in Tasmania.
Conversely, 5 lot or smaller strata buildings comprise less than half of the strata lots in Australia.
The percentages of total lots that 5 lot or smaller strata buildings represent in each state range from a low of 5% in NSW to 77% in Tasmania.
Some states have closer percentage ratios of smaller strata buildings to total buildings vs. total lots in smaller strata buildings to total lots, such as:
South Australia where they represent 74% of all strata buildings and 65% of all lots, and
Victoria where they represent 72% of all strata buildings and 40e% of all lots
And, if you go a bit bigger in size [up to 10 lots] we’re now talking about almost three-quarters of all the strata buildings in Australia [ranging from 71% in Northern Territory to 96% in Tasmania] and almost one-third of all Australian strata lots [ranging from 15% in NSW to 96% in Tasmania].
That’s a significant part of the strata sector and the impact of so many micro strata buildings warrants some broader analysis which I’ll do in a future article.
But, for now, let’s focus on micro strata schemes [2 or 3 lots] where we are seeing trends that they don’t want to be like other strata buildings, that regulators want to let relax compliance for them and many strata managers don’t want to manage them.
So, maybe we should do something completely different with micro strata buildings, as I suggest at the end of this article.
Existing differences for micro strata buildings
Most states treat micro strata buildings differently with a range of exemptions or exclusions [except for Tasmania].
And, there are proposals to introduce more exemptions and exclusions around Australia in that copy-cat style typical of Australian strata title law reform
Here’s an overview of some of the key exemptions. A more detailed state by state analysis is available to paying GoStrata Stak subscribers.
Victoria leads the way by exempting 2 lot strata buildings from a lot of the regular operational rules including things like:
not requiring building insurance,
not requiring meetings,
not requiring strata records,
all votes are majority decisions, and
more.
And, the Victorian exemptions have been in place since 2007.
Queensland has a new Specified Two-lot Schemes Module that can be applied to 2 lot strata buildings that replaces meetings and decisions with a ‘lot owner agreement’ mechanism and relaxes some of the other regular operational rules.
New South Wales has always included some special provisions about meetings and committee membership for 2 lot strata buildings as well as permitting them to not have building replacement insurance in limited circumstances. Plus, they can also choose not to have a capital works fund.
The Northern Territory has a dedicated small schemes module which applies to 2 and 3 lot strata buildings and allows them to not have a committee of management, making every decision a majority vote but requiring a majority of strata owners for quorums and making non-quorum decisions interim pending the next meeting with a quorum.
Western Australia exempts micro strata buildings from having a strata roll, keeping meeting minutes, keeping accounting records, having an administrative fund and maintaining a letterbox. And, voting works differently, effectively making all decisions unanimous.
South Australia allows micro strata buildings to not have a capital works fund and therefore, to avoid long term maintenance plans, plus a few other minor exemptions.
The Australian Capital Territory includes a range of changes and exemptions for micro strata buildings including things like:
not requiring bank accounts if everyone agrees,
requiring all decisions to be made by no dissent votes,
not requiring a communication officer,
putting all strata owners on the executive committee, and
more.
But, some states are still asking [as part of strata law reform processes] whether they should also start exempting 2 lot strata buildings from more strata laws and/or whether the existing exemptions should be extended. So, these trends are very likely to continue.
Plus, despite the applicable strata laws, there’s a lot of de facto or unofficial exemptions going on in micro strata buildings.
Many micro strata buildings make exclusive use by-laws allocating responsibility for most or all of the common property to the lot owners so the strata corporation has nothing to do.
And in many cases strata owners in micro strata buildings just ignore strata laws and run things as friendly [or not so friendly] neighbours. Discussing shared matters casually between themselves, ‘chipping in’ when something like insurance needs to be paid, and keeping whatever records might exist in the proverbial ‘shoe box’ [or more like the Gmail Inbox these days].
So, is it a good idea to have strata buildings that don’t follow strata rules?
Probably not, is the answer from a compliance and risk perspective, and
Definitely, is the answer from a cost and resource perspective.
But I wonder, why the strata laws exempt only 2 lot strata buildings in some states? If they can be exempted from strata laws why can’t more [bigger] strata buildings also be exempted [say, 3, 4, or 5 lot strata buildings] as they do in a few states? And, why can’t any size strata building decide to be exempted at any time?
Ultimately, these questions are policy matters for the government but, as I’ve outlined in my article ‘Strata Reforms [NSW] Update 1: Policy considerations & objectives’, that’s an area where the government is missing in action.
So is it possible that in the case of micro strata buildings, no one wants them to be strata buildings.
Not the strata owners who don’t want the hassle of compliance.
Not the strata managers who can’t charge enough to warrant managing them properly or at all.
Not the regulators who are busy dealing with bigger strata problems in bigger strata buildings.
If so, maybe they’re all right and micro strata buildings should they be excluded and/or given a pathway out of strata title.
My plan for [non-strata] micro strata schemes
Here’s my 6-part plan for getting micro strata buildings out of strata land.
1. No more 2-3 lot strata schemes should be registered.
2. Instead, 2-3 lot buildings are registered as small stratum subdivisions with a statutory operating contract [like a mini Strata Management Statement] that prescribes the basics:
mutual rights for support, shelter and utilities,
collective building structure and public risk insurance rights and obligations, and
default rights for lot owners to recover insurance premiums from each other.
3. Owners in these small stratum subdivisions deal with each other under existing property laws on operational issues. And, owners go to NCAT, VCAT, QCAT or whatever other state CAT that governs' building and co-living disputes.
4. Existing 2-3 lot strata schemes have a pathway to convert to a small stratum subdivision at any single owner’s initiative.
5. State governments provide financial incentives to micro strata building owners for converting to small stratum subdivisions [like stamp duty exemptions, no charge title registrations, and rebates for direct conversion costs like surveying, local council fees, etc].
6. Everyone in micro strata buildings and small stratum subdivisions is happy.
April 09, 2021
Francesco ...