06 November 2003
Off the plan strata developments - how to avoid strata stress
The number and frequency of off the plan strata title sales continues to increase.
However, recent legislative changes and a lack of understanding of the nature of strata ownership can cause significant problems with strata development if not dealt with at the correct time and in the correct manner.
Occupation certificates required to settle sales "off the plan"
From 1 July 2003 as a result of the Building Legislation Amendment (Quality of Construction) Act a purchaser of an "off the plan" strata lot is not required to complete the purchase until at least 14 days after receiving an occupation certificate for the building in which the strata lot is located.
An occupation certificate is a certificate issued by the local council or an accredited certifier under Section 109M of the Environmental Planning and Assessment Act approving the occupation of a new residential or commercial building.
"understand the basic nature of strata title and finalise and obtain documents as soon as possible ...."
This condition applies to any contract for sale for a lot in a strata plan exchanged after 1 July 2003:
before the strata plan is registered; or
within 12 months after registration of the strata plan.
The condition is automatically inserted into all such contracts despite the provisions of the contract. The parties cannot exclude the operation of this condition.
Land and house packages are also affected.
The condition has been inserted to give greater protection to purchasers. It requires a vendor to provide evidence of approval of the building as well as approval of the strata plan.
Developers need to be aware of these new requirements and ensure that an occupation certificate is obtained as soon as possible after completion of construction. Failure to do so will delay the completion of the sales.
Methods of measurement of strata lots
Contracts for sale of strata lots off the plan will normally contain a draft strata plan to show the location and size of the lot being purchased. Sometimes, a draft strata plan is not available when marketing of the development commences and when the first contracts for sale are issued.
However, time pressures and the need to demonstrate a sufficient number of sales to financiers will result in contracts being issued with architectural drawings and/or building plans in substitution for the draft strata plan.
The measurement of the areas of the lots in the building plans will usually be calculated by measurement to the middle of the walls, floor and ceiling in accordance with the standard Property Council guidelines.
However, the area of a strata title lot is measured by reference to the cubic space inside the lot. Accordingly, the strata plan, when it does become available, will measure the area to the inside surfaces of the lot only.
The end result will be that the area shown in the strata plan may be significantly less than that shown in the building plans issued with the original contract.
Many purchasers do not understand that there is more than one method of measurement. If contracts have not exchanged this may make a purchaser believe that the vendor is attempting to deceive them and cause exchange to be delayed or the sale to be lost.
More significantly, most contracts for off the plan sales will contain a provision that a purchaser can rescind the contract if the area of the strata lot they are buying decreases by more than a specified percentage in the final strata plans. A change in the area of the lot due to the different methods of measurement may entitle the purchaser to rescind the contract.
If possible contracts should not be issued until a draft strata plan is available. If building plans must be used the contract needs to:
disclose the different method of measurements; and
prohibit a rescission by the purchaser if a difference in size is due to the different method of measurement.
This also applies to agreements to lease strata lots. If a retail use the differences in measurement should be set out in the Disclosure Statement issued under the Retail Leases Act.
By- Laws For Mixed Use Schemes
Mixed use strata schemes, where a residential tower has some retail shops at ground level, are growing in popularity.
Care needs to be taken when selecting the appropriate by-laws for such schemes due to the different needs and uses of the residential component compared to the shops.
Issues such as electricity usage, insurance and security all have the potential to cause disputes if not dealt with specifically in the by-laws.
Whilst the strata titles legislation provides some basic by-laws for mixed use schemes these should be regarded as generic only and additional by-laws or amendments may be required depending on the development in question.
Experienced solicitors and strata managing agents should be consulted at an early stage to prepare the by- laws.
Erection of Signage
It is common in contracts for off the plan sales of commercial strata lots to grant the purchasers the right to install signage on the exterior of the building or in the grounds of the development.
As these areas are common property and not part of the strata lot being purchased, a special exclusive use by-law must be inserted in the by-laws to grant the purchaser the right to erect signage.
Such a by-law is also a useful way of imposing restrictions on the size, colour and type of signage that may be erected, clarifying the approval process and imposing maintenance obligations. This will preserve the general appearance of the development and prevent it resembling a mini Las Vegas.
A plan should also be prepared to accurately show the location of the signage to avoid future disputes between lot owners and the owners corporation.
This by-law must be included in the by-laws registered with the strata plan. Once the plan is registered the original developer no longer has control of the owners corporation and cannot guarantee that such a by-law can be passed.
In conclusion the key is to understand the basic nature of strata title and to finalise and obtain the required documents as soon as possible both to avoid delays in completion of the sales and disputes with purchasers both before and after registration of the strata plan.