Purchasing common property roof space

Content

This article first appeared on the LookUpStrata website which our team at Bugden Allen Lawyers regularly contribute to.

A NSW Lot Owner wonders how much to pay for the right to use common property. He’d like to purchase the roof space to build another bedroom. Emma Smythies, provides a few options plus the steps involved.

Question

Question: I want to purchase the roof space above my apartment to build another bedroom and the committee has agreed. What happens now and how do we work out the appropriate price to pay?

Answer

Answer: We provide 2 options: Strata Plan of Subdivision OR Exclusive Use – Common Property Rights by-law. We detail the steps involved in both options and even make a suggestion on the best way to proceed.

There are 2 ways in which you can be granted the right to use the common property required to build your new bedroom:

1. Option 1: Strata Plan of SubdivisionYou can be granted a special privilege to build the new bedroom pursuant to section 108 and section 142 of the Strata Schemes Management Act 2015. You can then purchase the relevant common property from the owners corporation. This will involve subdividing the existing apartment lot and the common property required for the bedroom into a new lot by way of a strata plan of subdivision. The subdivision is done after the new bedroom is built.
2. Option 2: Exclusive Use – Common Property Rights by-lawYou can be granted a special privilege to build the new bedroom and exclusive use of it by way of a common property rights by-law pursuant to section 108 and section 142 of the Act.

Steps involved in Option 1 Strata Plan of Subdivision

If you will be purchasing the common property pursuant to option 1, the following steps will need to be undertaken:

1. A by-law is to be granted providing you rights to construct the bedroom, to approve the strata plan of subdivision and new unit entitlement schedule and accept a transfer of the former common property from the owners corporation. This process will require special resolutions of the owners corporation and registration of the by-law at LRS;
2. You will need to have a surveyor prepare a strata plan of subdivision to subdivide the existing apartment lot and the common property required for the bedroom into a new lot;
3. If you have a mortgage, you will need the consent and co-operation of your financier;
4. You will need to apply to Council for subdivision approval;
5. You will need to appoint a valuer for two purposes:
   1. The first purpose is to value the common property which following subdivision will form part of the apartment lot. This valuation can be used to agree with the owner’s corporation the price being paid for the common property; and
   2. The second purpose is to value each lot in the strata scheme for a new unit entitlement schedule for the scheme. The Strata Schemes Development Act 2015 requires a re-assessment of all unit entitlements in the strata scheme because common property is subdivided by a strata plan of subdivision.

Steps involved in Option 2 Common Property Rights By-Law

If you will be granted a common property rights by-law for exclusive use pursuant to option 2 the following steps will need to be undertaken:

1. A common property rights by-law is granted providing you with the special privilege to build the new bedroom and exclusive use of the common property within which the bedroom will be built. A plan is used to define the area over which you will have exclusive use. This by-law will require a special resolution of the owners corporation and registration at LRS;
2. You will need to have a surveyor prepare a plan showing the area of common property on which the bedroom will be built. This plan will be used in the common property rights by-law;
3. You will need to appoint a valuer to value the common property over which exclusive use is being granted. This valuation can be used to agree with the owner’s corporation the price being paid for grant of exclusive use of the common property. There will not be a re-assessment of unit entitlements. While payment for common property in cases like this is not obligatory, it is likely to be expected by other owners and a valuation is an appropriate method to fix the price.

All of the above steps in either option 1 or option 2 can be covered by a one or more resolutions at a meeting of the owners corporation. There may be a second meeting needed for Option 1 to approve the re-assessment of unit entitlement within the time limits required under the Act.

Which option do I aim for?

Option 1 gives greater security – as you will own the new bedroom as part of a new lot for the whole of your apartment. This may increase the value of your apartment based on holding freehold title to the bedroom area, rather than an exclusive use right under a by-law. However, option 1 will involve additional time and cost of subdivision and council approvals and a re-assessment of unit entitlement for your lot and perhaps others.

Other lot owners may not want to undertake a process which may result in their unit entitlement changing (for example, a new valuation may result in a lot owner’s unit entitlement being increased resulting in the payment of increased levies). Option 2 is less complex and may result in an increase in the value of your apartment. However, a purchaser or new mortgagee may be concerned about the inferior level of “ownership” relying on a by-law.

Do you have a question about purchasing your roof space or the right to use common property? If so, please get in contact with our team.

Emma Smythies
Special Counsel
Bugden Allen Lawyers
E: emma@bugdenallenlawyers.com.au