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Understanding Unit Entitlement Valuations

In the event a development is constructed over a parcel of land, the new units can be strata titled to enable individual Titles to be issued for each new unit, therefore enabling each lot to be sold. This is known as a built strata development and can include residential, commercial, industrial or mixed use developments, amongst others.

When a property is subdivided into smaller lots, the new lots can be created as "green title" lots or Survey-Strata lots. A green title property is generally the most desirable as this is seen to be the highest form of property ownership. Green title is also the most expensive to develop as each lot must have separate services connected ie. Power, scheme water, deep sewerage etc. Alternatively, the new lots can be created as Survey-Strata lots which is similar to a built strata except it takes into consideration the land only, no buildings.

For Strata and Survey-Strata lots, the owner of the lot not only owns the unit they have purchased, they also have a share in the ownership of any common property. Strata schemes often also have a body corporate, or owners corporation, to manage communal areas within the development and issues relating to the scheme.

The individual owners within the scheme also have a right to vote on issues which arise within or affecting the development.

A large number of strata schemes will also require a common insurance policy to cover the entire development, rather than letting each individual owner organise their own insurance.

In order to determine each owners undivided share in common property, voting rights, along with their share of outgoings, a unit entitlement is assigned to each unit. A unit entitlement represents each units value as a percentage of the value of the whole development. It is important to note that the unit entitlement is based on market value and not size. A unit entitlement is an exercise in relativity. For example, if there are two lots in a strata scheme, each worth $300,000, then the unit entitlement for each lot would be 50 out of 100 (or 1 out of 2, or 5 out of 10 and so on). Whereas if one lot is worth $600,000 and the other is worth $400,000, then the unit entitlement would be 60/40 out of 100.

How can a property valuer help?

In order to comply with the Strata Titles Act, a licensed valuer must be engaged to complete what is known as a Form 3 document, which outlines the unit entitlement for each lot. This is normally organised by the surveyor looking after the subdivision or development. The Form 3 document must be submitted and approved by Landgate before the development progresses and individual Certificates of Title are issued. Given the unit entitlement can have a direct impact on your voting rights and also the proportion of costs you incur, it is important to engage a suitably qualified valuer.

Understanding the Strata Title Act

The legislation affecting property in Western Australia is the Strata Titles Act 1985. Strata is an Australian innovation in property law, currently used across the globe to specify individual property ownership in a large piece of land, where there might be several apartments or units.

Strata is a popular form of ownership in Western Australia given it is cheaper to develop land as Survey-Strata rather than Green Title; and as we attempt to increase housing density in and around the City, more and more multi-tier schemes are being development which require strata titles.

The Residential Design Codes of Western Australia, commonly referred to as the R-Codes, dictates the minimum and average land areas required for subdivisions, plot ratios, maximum building heights and setbacks, amongst other factors. Reasonably recent amendments to the Residential Design Codes of Western Australia have also allowed multi-tier schemes to be developed on sites with a zoning density of R30 or greater which has increased the number of these schemes.

The Strata Titles Act provides guidance on a many number of factors, including that the strata schemes must be insured at full replacement value, which should be updated by either a valuer or quantity surveyor at least every three years.

How to know if you have the right valuer

When choosing a valuer to complete a Form 3 document to set the unit entitlement for a new development or subdivision, you should ensure the valuer is familiar with the area in which the new scheme is being created.

The valuer should also be provided with a copy of the proposed Strata Plan and if the development is a built strata then an internal inspection of the units will need to take place.

This article was written by Hemsley Patterson.

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