A freehold strata is a type of property ownership that differs from just freehold ownership. A residential freehold strata property can be a condo, townhouse, duplex, or even a single-family home in a bare land strata corporation.
Often written as freehold/strata, the owner has freehold title to the strata lot. Strata ownership allows for the subdivision of a building or land into separate parts for private ownership (freehold) and joint ownership of common property (strata).
Compared to a freehold property, a freehold/strata property has its own set of terms that you may or may not be familiar with at this point. Below I’ve outlined 11 common terms that you will come across when looking at freehold/strata properties. These terms will not apply to freehold ownership or leaseholds since the Strata Property Act does not govern those property types.
A strata corporation is created once a developer files a strata plan at the Land Titles Office. At that time, the owners of the strata lots in the strata plan are members of the strata corporation. The Strata Property Act governs the strata corporation.
A strata council can pass rules to regulate the use, safety, and conditions of common property and common assets.
For instance, a strata corporation may have a set of written rules that restrict the pool or amenity room hours. For example, if the pool is only available for use from 8 a.m. to 10 p.m. If a rule conflicts with a bylaw, the bylaw will prevail.
Rules, however, do not govern the use of an owner’s strata lots. It’s important to remember that a rule is not enforceable if it conflicts with the Strata Property Act, the Human Rights Code, or the law.
A strata corporation must have bylaws. Similarly to a strata’s rules, a bylaw is not enforceable if it conflicts with the Strata Property Act, the Human Rights Code, or the law. Bylaws are in place to provide control and management of the strata lots, limited common property, common property, common assets, and the strata corporation’s administration.
Unless amended bylaws are filed at the land titles office, a strata corporation’s bylaws are the Schedule of Standard Bylaws. In order to amend the Schedule of Standard Bylaws, the proposed amended bylaws must be approved at an annual general meeting or special general meeting and passed by a 3/4 vote of the residential and non-residential strata lots.
The amended bylaws take effect once they have been filed at the land titles office. For instance, the Schedule of Standard Bylaws does not have a weight restriction while allowing pets. If an amended bylaw for pets is passed, you’ll still likely see pets allowed, but perhaps they’ll have to weigh less than a certain amount.
The schedule of unit entitlement is used to determine a strata lot owner’s strata fees and determines the proportionate share that each strata lot owns of the common property. As a result, the schedule of unit entitlement is also used to determine the amount an owner would have to pay for a special levy.
The unit entitlement of a residential strata lot is calculated using the strata lot’s total habitable area. Generally, the more habitable space a strata lot has, the higher its proportionate share of common expenses and the amount payable for a special levy.
The payment of your strata fees are due on the first day of each month, and they are calculated based on the schedule of unit entitlement. Owners are required to contribute, through a monthly strata fee, their strata lot’s portion towards the strata corporation’s operating fund and the contingency reserve fund.
Operating costs are expenses that occur at least once a year or more often. A few examples of a strata corporation’s operating costs include common area utilities, landscaping, cleaning, minor repairs and maintenance, and building insurance.
The purpose of a contingency reserve fund is to allow a strata corporation to plan for major repairs or replacements of a strata corporation’s common property or common assets at a future date. A strata corporation can significantly reduce or eliminate the number of special levies, should an unexpected expense arise, by having enough money in the contingency reserve fund.
The contingency reserve fund shows how much money is available to the strata corporation should a major repair be required. The contingency reserve fund is different from the operating fund in that it is used to pay for expenses that occur less than once a year or not at all.
Overall, a building’s depreciation report, financial statements, and strata minutes will uncover a lot about a strata corporation’s financial health and stability.
A strata corporation must obtain a depreciation report every 3 years unless the strata corporation, through a 3/4 vote, has voted to waive or defer a renewal of the depreciation report. A depreciation report must summarize the strata corporation’s common property and assets, including a financial forecasting section projecting the next thirty years.
A building’s major components can include the roof, windows, electrical and heating system, balconies, underground parking, elevators, and common areas. A qualified person who conducts the depreciation report will outline three cash flow funding models for the contingency reserve fund over the next thirty years. Examples of cash flow funding models may include special levies, increased strata fees, or financing.
A depreciation report helps current owners and prospective purchasers better understand the strata corporation’s common property and assets and any future maintenance, repairs, or replacement costs over a thirty-year time period.
When an unexpected major repair or replacement is needed, and there is not enough money in the contingency reserve fund to pay for the required expense, the strata corporation may raise money from the owners through a special levy.
For instance, say one of the elevators breaks down and needs to be repaired. A strata corporation can use money from the contingency reserve fund to pay for the expenses. Or the owners can approve a special levy, through a 3/4 vote, instead of using available funds from the contingency reserve fund. A strata corporation will calculate each strata lot’s share of a special levy using the schedule of unit entitlement.
The strata lot is shown on the strata plan (labelled SL) and is the area that belongs to the individual strata owner. When you buy a freehold/strata property, you acquire fee simple title to your strata lot. As a result, you own your home (as long as you continue to make your mortgage payments) until you decide to sell it. Your strata lot is your property, and you can do what you like within it, except for restrictions set out in the strata’s bylaws.
Common property (labelled CP) includes the building areas or property on the strata plan that are not the strata lot or designated as limited common property. Common property is owned by all strata owners in proportion to the schedule of unit entitlement. Some common property examples may include hallways, elevators, amenity rooms such as a gym or rooftop patio, and the building’s exterior.
Underground parking stalls and storage lockers can also be designated as either common property or limited common property. It will depend on how it’s written on the strata plan.
Limited property is common property (labelled LCP) designated for the exclusive use of the owner of one or more of the strata lots. Limited common property is an example of a short term exclusive use. However, with limited common property, the limited common property area is attached to the strata lot. As a result, when a strata lot transfers ownership, the right to the exclusive use of the limited common property will transfer to the new owner.
A parking stall designated as limited common property allows the strata lot owner exclusive right to use that space, but the owner does not own that area. For instance, if a parking stall, say #11, is limited common property, then upon the sale of that strata lot, the new owner would use parking stall #11.
Short term exclusive use often refers to when an owner is allowed to use common property for a specified period of time. The strata council has to grant permission to the owner or tenant for the exclusive use of the common property that is not already designated as limited common property.
For example, if the underground parking area is common property on the strata plan. The owner of a strata unit may use #22 as their parking stall number. If they sell their unit a few years later, the new owner will likely have a different parking spot number since the parking area is designated as common property on the strata plan.
However, had the parking spot been limited common property, the current owner and all future owners would use #22 as their parking spot.
Thank you for taking the time to read my blog post today. I hope you found the information on freehold strata terms informative, and I wish you the best for the week ahead!
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