Buying a unit?
What happens when you want to buy a house, a unit, a block of land, or other form of real estate? How do you make sure that your rights are protected? How can your solicitor advise you, and what will he or she do on your behalf to make sure everything is in order?
This information has been prepared as a general guide to help you understand your solicitor’s role in conveyancing. Your solicitor will be pleased to answer any specific questions you may have.
As well as established houses and units, there are other kinds of property transactions which require distinct procedures. These include sales by auction or tender; buying into a retirement village or nursing home; buying a commercial property, business or rural property; buying vacant land (or land with a building under construction or to be built on it); and ‘off the plan’ sales. These are all special categories and your solicitor is experienced in handling all these types of transactions.
Please note that this information focuses on some of the issues that are special to the case of unit titles, and should be read with the more general advice found in ‘Buying a Home?’.
What is a unit title?
The title associated with a parcel of land that is subdivided into townhouses or home units is generally a ‘unit title’. A units plan divides a parcel of land into units and common property. On and after registration of a units plan, the parcel is subdivided as specified in the plan, and the individual units are thereafter owned by the developer until sales to buyers are finalised (usually within two weeks of registration of the units plan).
From registration all individual units are controlled by the owners corporation (formerly called the body corporate), which is comprised of all the current unit owners. The common property is the part of the land and/or building(s) in the units plan which does not form part of any unit, but is owned and controlled by the owners corporation. This may include lifts, stairways, passages, driveways, carparks and gardens.
Units are divided by the Unit Titles Act 2001 into Class A and Class B units. In very general terms Class A units are found in multi-storey buildings, whereas Class B units are free-standing, for example townhouses. There are some differences between the laws which apply to Class A and Class B units, which your solicitor will explain to you.
Dual (or more) occupancies on redeveloped residential land have become a common form of unit title in recent years, and have some special features which your solicitor will explain to you.
Another form of unit ownership is the company title scheme. This involves ownership of shares of a company which owns the relevant land and building(s). Ownership of a particular parcel of shares will allow occupation of a particular unit therein. Generally, the permission of the controlling company will be required in order to do certain things such as buy shares or lease the unit.
Because an investor in a company title scheme does not actually own any of the land or building(s), lending institutions will look less favourably on investment in a company title scheme as security for a loan.
There are very few company titles still existing in the ACT, as this form of ownership was mainly used before the unit title legislation was first passed in 1970.
Your solicitor will be able to advise you as to the rights, obligations and other ramifications of investing in a company title scheme.
The owners corporation and its functions
Before the units plan is registered, the owner of the land (usually the developer) is responsible for managing, maintaining and controlling the site.
As soon as the units plan is registered the owners corporation takes over, and it has various powers and responsibilities generally concerned with the upkeep of the building(s) and particularly the common areas.
The executive committee of the owners corporation can exercise many of the functions of the corporation. The executive committee is selected by resolution at the first annual general meeting and thereafter at subsequent annual general meetings.
Often, the owners corporation will delegate some of its duties and powers to an owners corporation manager, who may be, amongst other things, a licensed real estate agent. The manager thereafter acts on behalf of the owners corporation in respect of the delegated matters.
The rights and responsibilities of the owners corporation and unit owners are governed by the Unit Titles Act 2001. This Act, in combination with the associated regulations, defines the powers and obligations of the owners corporation and of individual unit owners.
What are the principal powers and obligations of an owners corporation?
The principal powers and obligations of an owners corporation are:
- Establishing funds for property management and maintenance, including a 10 year Sinking Fund Plan for future repairs.
- Setting owners corporation levies each year.
- Employing service contractors to carry out work, maintenance or repairs on the building(s) and common property.
- Adding to, amending and enforcing the articles or rules.
- Commencing legal proceedings to recover damages for any harm caused to the building(s) or common property.
- Taking out building insurance against defined events (such as storms and fire); and also taking out other insurances required by law, for instance workers compensation and public liability insurance over the common property.
- Maintaining the building(s) and common property.
- Holding annual general or special meetings of owners.
- Keeping minutes of meetings and preparing accounts.
- Recording details of the ownership and occupancy of units in a unit roll.
- Providing information to owners and mortgagees about the unit scheme, including issuing a certificate under s 75 of the Act to unit owners who wish to sell their property.
What are the principal obligations of unit owners?
The principal obligations of unit owners are:
- Generally, acting in such a manner as not to offend other residents or interfere with their peaceful enjoyment of their property.
- Paying rates (including land tax (if applicable) and owners corporation levies.
- Notifying the owners corporation of any change in ownership or occupancy.
- Complying with the articles or rules.
- Not undertaking structural alterations or external additions to the unit or installing external air conditioning units without the consent of the owners corporation (and ACTPLA when that consent is required by law).
- Insuring their unit if the owners corporation has not effected building insurance.
- Insuring their contents in the unit (this may need to cover carpets, window treatments, light fittings, and fixtures, fittings and equipment within the unit) and effecting public liability insurance within the unit.
If I intend to rent my unit, do I have additional responsibilities?
Yes. You should ensure that compliance with the articles and/or rules is made a condition of any tenancy agreement and that your tenant is supplied with a copy of the articles and/or rules. Also, you must notify the owners corporation of the name of the tenant, the date the tenancy commenced, and the name of any real estate agent involved in managing the tenancy. You must also notify the ACT Revenue Office as you are now liable to pay land tax. And for your own protection you should take out landlord’s insurance.
Are pets allowed in units?
The Act provides that animals (which includes an amphibian, bird, fish, mammal or reptile) may be kept within the unit or common property only with the consent of the owners corporation, which consent may not be unreasonably withheld. The owners corporation cannot generally prohibit you from keeping a guide dog in a unit or on the common property.
If you believe the owners corporation has unreasonably refused permission to keep a pet, or that someone is keeping a pet without permission, or that a pet is causing a nuisance, see the following paragraph regarding resolving disputes.
How are disputes resolved?
Many disputes can be avoided through familiarisation with the articles or rules — for example, locations for placement of garbage, not exceeding noise level requirements, where to park cars, and things of this nature.
Although many disputes can be settled amicably through communication and common sense, or by referring the matter to the Manager or executive committee of the owners corporation, application can be made to the ACT Civil and Administrative Tribunal (ACAT) for resolution of the dispute should interpersonal resolution fail.
What inquiries should be made before buying a unit?
Before contracts are exchanged, your solicitor will show you the title searches and the s75 certificate attached to the contract which show:
- The units plan.
- Levies payable to the owners corporation and whether they are in arrears.
- Changes to the articles.
- Insurance policies held by the owners corporation.
- Any legal proceedings involving the owners corporation.
- Any expenses for which the owners corporation is or may become responsible.
In the case of a Class A Unit your solicitor will show you the Minutes of Meetings of the owners corporation and Executive Committee which are attached to the contract, and ask you to consider getting building, pest and compliance reports.
In the case of a Class B Unit your solicitor will show you the building, pest and compliance reports (and note you will have reimburse the seller for the cost of these as an extra at the time of settlement) that are attached to the Contract. If no Minutes have been provided or they are not up to date (and the same would apply to Class A units) advise you to consider examining the books and records (particularly the correspondence file) of the owner’s corporation.
In the case of Class A units, checking the number and location of the car parking spaces and storage locker are as shown on the units plan.
Buying a unit ‘off the plan’
Many units today are sold on an ‘off the plan’ basis — that is, before construction has finished, and usually before it has even started. This carries with it a number of potential problems and issues that you need to be aware of.
Whether you are buying the unit as an investment or for your own occupation, your solicitor will need to go over the contract with you very carefully so you are aware of the developer’s rights and your responsibilities. Particularly important are the contract’s special conditions, which may specify, among other matters:
- Issues relating to the investment of the deposit and the sharing of the interest earned between you and the developer.
- That the developer is able to considerably extend the time that it has to complete the unit complex without you being able to pull out of the contract.
- That the area of your unit can be reduced by up to 5% or more without giving you any compensation.
- That the location of the car parking space(s) and storage locker for your unit can be varied by the developer.
- That the times at which you can inspect your unit during construction are limited.
- That you cannot require defects to be remedied before you have to complete the purchase and must rely on the developer remedying any such defects under the 90 day maintenance provision.
- That you only have two weeks to complete the purchase after the developer notifies your solicitor that the units plan has been registered.
With an off the plan purchase you have up to 12 months and two weeks to pay stamp duty from the date contracts are exchanged, unless (i) a certificate of occupancy (final certificate) for the unit complex issues within that time (and this may occur some time before the units plan is registered), (ii) if you on-sell your unit, or (iii) settlement occurs. In any of these three cases you only have two weeks from that event to pay stamp duty (but in the case of (iii) your lender will require you to pay stamp duty before settlement).
Buying off the plan as an investment
If you are buying a unit as an investment, you must investigate its financial viability and all aspects of tax with your tax advisor before contracts are exchanged. Some of the many matters you will need to discuss with your tax advisor include the following:
- The name(s) the property is to be bought in and, if there are to be two or more owners, then whether you should buy as joint tenants or tenants in common (and if the latter then in what shares).
- The deductions that may be claimed for stamp duty and other incidental costs of acquisition, and deductions for depreciation and the costs of repairs and in running the unit.
- The records you need to keep.
- Capital Gains Tax and GST issues.
Arranging finance for an off the plan before you exchange contracts is not often possible today, as lenders now will generally only allow you three months to draw on an approved loan, and of course the building of a unit complex may take a lot longer than that.
How can a solicitor help me?
Your solicitor can:
- Ensure that you become the registered owner of the unit you are buying.
- Advise you of your rights and duties as a unit owner and a member of the owners corporation.
- Advise you of the owners corporation rights and obligations and powers to enforce its articles or rules.
- Ensure your seller has paid his or her owners corporation levies and that rates are up to date.
- Advise the owners corporation when you have become a unit owner.
Once you have become the owner of a unit your solicitor can also assist you in the resolution of disputes; and can prepare a contract when you want to sell your unit.
Your solicitor will be protecting your interests only.
This publication is intended as a simple guide, and is not intended as legal advice. While every care has been taken to ensure the accuracy of the information contained in this publication, the ACT Law Society does not make any representations or warranty as to the accuracy of the material in the publication. The publication has been written according to the applicable laws in Australia relevant to a resident of the Australian Capital Territory as at September 2011.