Sales & Purchases of Strata Lots
Strata and community title lots are bought and sold in much the same way as other parcels of land are bought and sold.
Because of the body corporate and its levy process, these transactions usually involve a special sale contract or special conditions in the normal sale contract. However, the existence of the body corporate presents other difficulties for a purchaser and their financier.
Because lot owners must contribute funds to a body corporate in sufficient amounts to enable the body corporate to discharge its liabilities, the legal position of the body corporate is akin to that of an unlimited liability company. That is to say, the lot owners are liable to discharge the body corporate's debts and successive levies can be imposed until sufficient funds are available, even if this means that one or more of the lot owners are forced into bankruptcy.
Add to this the fact that a purchaser automatically becomes a member of the body corporate when their interest is registered and it will be appreciated that lot purchasers should be very concerned to ensure that there are sufficient funds in the body corporate's bank account to discharge its liabilities.
If this is not the case, then the purchaser will have to make up their share of the deficiency once they are registered as the owner of the lot they are purchasing. Clearly, this is also a matter of concern for a financier who, in the event of a default under their mortgage, may need to enter into possession of the lot and exercise their power of sale. In this event they are potentially liable for any unpaid levies.
In practice, many purchasers and financiers arrange for a "due diligence" exercise to be carried out in respect of the body corporate. This is usually arranged by the purchaser's solicitor, although some purchasers undertake the process themselves. This process should only be undertaken by purchasers who are confident that they know exactly what to look for and the records that need to be examined.
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