New Years Resolution Investing
Many people love the ease that apartment living provides but it’s important you know what you’re investing in when it comes to apartments and townhouses. Buying a property that’s strata titled is very different to purchasing one that isn’t, especially for those intending to live in it.
Michael Matusik says that there is an increasing trend of first home buyers considering alternatives to free-standing houses, especially with most apartments and townhouses about 20% cheaper than a detached dwelling in the same area.
There are rules and regulations by which you must behave as an owner of an apartment and it’s better to know these up front before you sign any purchase contract.
There are three common types of apartment ownership in New Zealand:
- Unit title, (also called “stratum estate” or “strata title”).
- Company share (also called a flat owning company).
The rules on maintenance will differ according to the type of ownership and the specific rules for your apartment block.
Before you carry out any maintenance or structural work, check the rules applying to your apartment block. In some cases, the work will be the responsibility of the ‘body corporate’ which is a collective of all unit owners of the block you live in. In other cases, you will need permission to carry out work from the ‘body corporate’.
What are unit titles?
Unit titles are the most common form of apartment ownership. Under a unit title, you own your own apartment and a share of common areas (such as the building’s exterior or corridors). The common areas are the responsibility of the ‘body corporate’.
The body corporate has to keep these shared areas in good repair. It is also responsible for organising and maintaining insurance for your building/s, and it may have rules about what changes you can and can’t make to your apartment. You contribute to common insurance/maintenance costs by paying a ‘body corporate levy’. The best way to ensure your building is well maintained is to be an active member of the body corporate.
A good body corporate will have a long-term maintenance plan identifying the annual work needed to keep the apartment building in good condition. There should also be funds set aside each year to do this work.
Often body corporate members do not want too large a maintenance fund, as members are not able to withdraw their share of the fund if they sell their apartment. This share of the fund is sold with the apartment.
You are responsible for insuring your home contents yourself.
What is company share title?
The land and buildings are owned by a company. Company share title gives the individual owners an equity share in the company. You occupy the apartment with a ‘license to occupy’.
Each company share will have different rules regarding maintenance of the building. Company share title comes under the Companies Act and there are no specific rules regarding how the company should manage maintenance and levies.
Check on the conditions of your particular company before doing any major maintenance or work which may affect common areas of the property.
What is cross lease?
In a cross-lease situation you own an undivided share of the land with other owners, and then lease your building from the other owners. The documentation for the cross lease will set out which areas you have exclusively for your own use and which areas are shared.
It will also set out responsibilities for maintenance of any common areas created. Check the details of your cross lease before carrying out any maintenance which could affect common areas.
What do I own?
One of the major differences between owning a house and owning a unit or townhouse in a strata scheme is that the external walls, the floor and roof do not usually belong to the lot owner. These areas are usually common property and the maintenance and repair of these parts of the building is the responsibility of the owners corporation.
In most strata schemes, the lot owner owns the inside of the unit but not the main structure of the building. Usually the four main walls, the ceiling, roof and the floor are common property. The floor coverings such as carpet and fixtures are all the property of the lot owner. A lot owner effectively owns the airspace (and anything included in the airspace) inside the boundary walls, floor and ceiling of the lot.
What meetings will I have to attend?
While it is not compulsory for any lot owner to attend owners corporation meetings, you may want to take an interest in the building’s affairs. There would usually be several meetings of the owners corporation each year, although the annual general meeting is the only meeting required by law, and probably the most important meeting you should attend.
If you’re the party-loving kind, then apartment living might not be for you — unless the rest of the building loves a party too. Under by-laws, any person wishing to entertain must take into account the peace and enjoyment of other tenants. As an owner you are responsible for the behaviour of any guests too.
The successful outcome of your decision to buy a particular property will be influenced by the amount of research you do, and of course, money will always be a major factor.Tags: Body corperate, home loans, Investing, Mortgage broker, Unit Title