As property prices rise throughout Queensland, both owner-occupiers and investors are increasingly looking to purchase more affordable properties, such as units or townhouses in a complex or apartment building forming part of a community titles scheme (as it is called in Queensland) or strata title (as it is more commonly called elsewhere in Australia).
In Queensland, the majority of sales and purchases of properties in a community titles scheme take place using the REIQ Contract for Residential Lots in a Community Titles Scheme. No contract is perfect, and the REIQ contract has some shortcomings, as discussed below.
Building and Pest Condition
If the “Building and/or Pest Inspection Date” section of the contract is completed, it means the contract is subject to the buyer obtaining building and/or pest reports for the unit/townhouse. In the event that the buyer is not satisfied with the report, the buyer has the option to terminate (provided it is reasonable) the contract and receive a refund of the deposit paid.
This condition is limited to what the report has to say about the unit/townhouse itself under contract. But what about the common property, such as any garden areas, foyer, retaining walls, driveways, facilities, and so on, that are not part of the unit? The answer is: you’re out of luck!
The common property is owned by the body corporate (called the owners corporation elsewhere in Australia), and the cost of maintenance, repair, and replacement of any part of the common property solely rests with the body corporate. The body corporate will have a sinking fund to meet these types of expenditures. But what happens if, for example, a retaining wall forming part of the common property has to be replaced and there’s not enough money in the sinking fund?
In this instance, the body corporate will need to raise special levies from each owner in the community titles scheme. Each unit/townhouse in a community titles scheme has an allocated contribution schedule lot entitlement (the acronym is CSLE), and the contribution towards the special levy will be based on the contribution schedule lot entitlement the unit/townhouse bears to the aggregate of all contribution schedule lot entitlements in the community titles scheme.
Say in a scheme called Brisbane Apartment Building CTS 1234 there are 10 units/townhouses, and each unit/townhouse has an allocated contribution schedule entitlement of 1. This means if the special levy is for $100,000, each owner has to contribute 1/10th, equating to $10,000.
For this reason, it is important that the Building and Pest Condition of the contract is amended so the condition also equally applies to the common property. Or as an alternative, a due diligence condition is added. This will reduce the likelihood of surprise special levies where each owner has to make their respective contribution. This is particularly important for investors who have their set budget when making a commercial decision to purchase a unit/townhouse.
Prudent buyers should seek legal advice prior to signing the contract and ensure recommended amendments, such as the Building and Pest Condition, are made to the contract. Once the contract is signed, there is little to no room to require any changes, as contracts once signed are intended to be binding on the parties.
Disclaimer: This content is intended as general commentary and may not be applicable to your specific situation. It does not replace independent legal advice. For a no-obligation consultation on various matters, you can contact us at (07) 3184 2424.