Should I Apply For Strata Subdivision or Exclusive Use By-Law When Building Into The Roof?
Two commonly asked questions I am asked by top floor strata apartment owners are:
“How much should I pay for the right to use common property? I would like to purchase the roof space to build another bedroom and bathroom, maybe a roof balcony to enjoy the outdoors but I do not know what will add the most amount of value to my property?”
“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?
Warren’s Answer: Are you wanting to purchase a percentage of the strata asset, or just the exclusive use of it?
Let’s explore this answer a little deeper, so you understand Let’s explore this answer a little deeper, so you understand why I ask this question...
There are two options available to be granted the right to use the roof...
Strata Plan of Subdivision OR:
Exclusive Use – Common Property Rights By-Law
There are a number of steps involved with both options for a roof conversion and I will suggest the best way to proceed.
Option 1: Strata Plan of Subdivision
You can be granted permission by the owners’ corporation to purchase the roof space. 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.
If you are purchasing the common property, the following steps will need to be undertaken:
A by-law is granted, providing you rights to building into the roof space, 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 the Land Registry Services;
A surveyor will prepare a strata plan of subdivision to subdivide the existing apartment lot and the common property required for the bedroom into a new lot;
If you have a mortgage, gain the consent and co-operation of your financier;
Apply to Council for subdivision approval;
Appoint a valuer to:
Value the common property which the 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
Value each lot in the strata scheme for a new unit entitlement schedule for the scheme. This is required to re-assess all unit entitlements in the strata scheme because common property is subdivided by a strata plan of subdivision.
Option 2: Exclusive Use – Common Property Rights By-Law
You can be granted permission by the owners’ corporation to build in the roof and have exclusive use of it by way of a common property right.
If you wish to be granted a common property rights by-law for exclusive use, the following steps will need to be undertaken:
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 Land Registry Services;
A surveyor will 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;
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 the 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.
Which option is best for me?
Each of the steps in either Option 1 or Option 2 can be covered by 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.
Pros: Provides 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.
Cons: This involves additional time and cost of the subdivision, council approvals, 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).
Pros: This option 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.
Cons: You do not own the space and therefore, it does not count towards your added value per square metre. You will still own loan the same unit entitlements and not a larger share of the building and land value.
Let’s look at a practical example…
John has a 70m² top floor apartment of eight overlooking Tamarama. He has permission from the owners’ corporation to build a bedroom, bathroom and roof balcony, totalling 35m² in the roof space above his apartment. The average value per m² in Tamarama is $18,000 per m².
Option 1: John purchases the additional roof space for $50,000 and adds the space to his title through a strata plan subdivision. His unit entitlement goes from 12.5% to 16%. John goes to the bank for a loan or decides to sell the apartment.
The apartment is advertised as a 105m²(70+35) x $18,000 m². The bank or agent values the apartment at $1,890,000.
Option 2: John purchases the additional roof space for $20,000 and adds the space to his title through an exclusive use by-law. His unit entitlement stays the same. John goes to the bank for a loan or decides to sell the apartment. The apartment is advertised as a 70 m2 with the exclusive use of the roof space x $18,000m².
The bank or agent values the apartment at 70m² x 18,000 = $1260,000 plus the perceived value of the roof space that cost $245,000. The bank or agent values the apartment at $1260000 + $245,000 = $1,505,000.
As you can see in the above scenarios, a strata subdivision will add more value than an exclusive by-law.
Do you have questions about the value of your roof conversion and which option suits your situation?
If you are still unsure about which option is best for you and you would like to explore the possibility of adding an entire second floor to your top-floor apartment, contact Warren Livesey for an obligation-free chat on 0415 254 420 or email firstname.lastname@example.org. Warren can assist with everything from design to construction, using his vast knowledge and 20+ years of experience. #buyairspace