The property market is filled with opportunities, and house hunting can be a new and exciting prospect for many. However, is buying a duplex a smart option? Here, we discuss some of the common misconceptions associated with owning duplexes.
Purchasing a duplex has several benefits for investors and general buyers.
There is a massive demand for duplexes, units, and townhouses on the Gold Coast, particularly from first home buyers and millennials. First home buyers who have their finances ready but have been priced-out of larger free-standing homes are now snatching up these types of properties so that they can enter the market and take advantage of the more affordable price tag.
As an investor, purchasing a two-lot duplex means that you can receive two rental incomes from one asset. Building one means you can earn a similar rental income like that from two detached houses and save thousands on land costs, as a duplex requires much less land than two detached houses. They also offer opportunities for multi-generational living, which is increasing in demand.
But many unsuspecting homeowners purchasing a new duplex may be unaware of their rights and obligations when it comes to body corporate and strata.
A duplex is typically two adjoining houses connected by a common wall, adjacent courtyards or exclusive areas of common property.
It’s common for the two lot owners in a duplex (or even a single owner of both the lots) to be unaware they are part of a body corporate in a community titles scheme. As a result, disputes may arise when one owner seeks to have the other owner comply with legislation. The other owner denies the Scheme’s existence or obligations as a body corporate member. Quite often, new owners may be told (incorrectly) there is no “body corporate”.
This is one of the misconceptions our Property Law team often encounters from clients. Here, we delve into body corporate requirements specific to duplexes, and address other common fallacies surrounding duplex ownership in detail.
Misconception 1: I don’t need a body corporate
Like any other community titles scheme, duplexes must comply with the provisions of the Body Corporate and Community Management Act 1997 and the applicable regulation module.
For duplexes and other properties in two-lot community titles schemes, being a member of a body corporate isn’t optional. This means you share responsibility for managing and maintaining the common areas, like driveways or shared landscaping. While this may not be obvious upon purchase, it’s essential to understand the responsibilities involved before buying into such a scheme.
On 1 March 2021, the Queensland Government’s new body corporate and community management regulations modules became law. The changes applied to the Body Corporate and Community Management (Small Schemes Module) Regulation (SS) and Body Corporate and Community Management (Specified Two-lot Schemes Module) Regulation (TL).
These modules predominantly apply to residential community titles. They are more accessible for lot owners to manage as they generally require little regulation compared with other body corporate modules. The regulations act as a guide or framework for community title schemes to follow when things go wrong.
The Small Scheme module applies to residential schemes of no more than six lots.
The Two-Lot module will apply:
- If there are only two residential lots in the Scheme; and
- The Community Management Statement identifies that the Two-Lot Module applies. It may be necessary to amend the Community Management Statement to reflect this.
If your CTS is not under a Two-Lot module, and you and the other owner wish to change the CTS to a Two-Lot scheme, a property lawyer can assist you with this.
If two lots are registered with the Titles Queensland Office as a community titles scheme (CTS) and have a CTS number, then there is a body corporate and owners of the lots are members.
If your property is registered as a CTS, then the Body Corporate and Community Management Act 1997 (the Act) applies. The Scheme will also be registered under one of the five associated regulation modules – the Standard Module, Accommodation Module, Commercial Module, Small Schemes Module or Specified Two Lot Schemes Module. The Act and relevant regulation module that applies to your Scheme determine how your Scheme should operate.
Misconception 2: Setting up a body corporate is too expensive
While forming a body corporate for your duplex might seem pricey upfront, it’s an investment that pays off and saves time and money in the long run.
Without a well-structured body corporate in place, potential buyers may be spooked by the lack of structure and be deterred from taking on a sale, impacting your asking price.
Fixing the oversight after the fact will involve surveying fees, legal consultations and potentially even modifying the Community Titles Scheme – an exercise that will be significantly more expensive than setting up a body corporate from the start.
Our experienced property lawyers have witnessed first-hand the financial setbacks this can cause. Don’t let an upfront cost jeopardize future returns.
Misconception 3: Because we are part of a body corporate, we therefore need a body corporate manager
Sometimes people have a body corporate manager and are paying them when they don’t need to.
Changes to property law in Queensland means that although duplex owners must be part of a body corporate, there is no requirement to appoint a body corporate manager to manage their properties or have any formal body corporate meetings or votes, provided their CTS specifies a Two-Lot scheme module.
The legislation – the Body Corporate and Community Management (Specified Two-Lot Scheme Module) Regulation 2011 – was introduced so that owners can instead enter into a “Lot Owners Agreement” to allow for the management of their properties themselves.
A Lot Owners Agreement gives the parties freedom to manage their properties in a way that suits them best.
Lot Owners Agreements must be in writing, dated and signed by the respective lot owners and contain matters agreed upon between the owners. Typical matters that must be included in the Agreement are insurance, maintaining and improving the common property, and paying premiums for the insurance and maintenance.
Any lot owner can request the other lot owner in a duplex to enter into such an agreement. This request must be in writing and state the proposed details.
Misconception 4: Insurance is optional
Owners must have a building insurance policy covering both homes of a duplex.
The body corporate is responsible for insuring the common property and the body corporate assets (or building). Initially, it must be established whether the duplex has common walls or a roof. If it has either of those things, the building must be insured as one singular property, and therefore it must fall under a strata title property policy.
Body Corporate insurance covers damage to the building itself, and also covers all fixtures within the building. In addition to covering reinstatement of buildings and the cost of taking away debris, professional adviser fees and the insurance must cover damage, legal liability for the common property.
Therefore, both lots must be insured with the same insurance company on the one policy in the body corporate name. If the two individual lot owners insure their lots with two different providers, the policies of both lot owners may be invalid which would end in disaster if something unexpected happens and either owner needs to rely upon their insurance to fix the property.
The policy must be for the total replacement value of the building, common property, and corporate assets (Specified Two-lot Schemes Module Regulation 2011). The body corporate must also maintain public liability insurance.
If you are facing a dispute with the other duplex owner regarding policy contributions, start by trying to resolve the matter privately to avoid unnecessary conflict.
Engage in open dialogue with the other property owner. If you can’t reach a resolution between yourselves, then you may need to seek legal advice to help you resolve the matter quickly and effectively.
If the property doesn’t have shared walls and your lot is a standalone property, you can insure it separately under home insurance. However, the Act does state that the common property (such as driveways or other areas of common land) must have public liability insurance. So, it can sometimes be challenging to get around that specific requirement.
Attwood Marshall Lawyers – helping property owners grow and protect their real estate assets
Body corporate, strata and insurance are complex issues to navigate, especially where duplexes are involved. It is critical that real estate agents, buyers and sellers seek legal advice to help them understand all the details when buying and selling a duplex. Property lawyers can advise on changes in the law that may affect the transaction to ensure the transfer of property happens with minimal stress, whilst mitigating the risk of any issues arising in the future.
Attwood Marshall Lawyers have been assisting real estate agents, property investors, buyers, and sellers, for over 75 years to ensure they achieve their real estate goals. Our team takes great pride in explaining all the considerations given to property transactions to ensure buyers and sellers protect their wealth and that their best interests are considered.
As a PEXA-certified law firm, we strive to ensure settlements proceed smoothly and happen on time, without any surprises along the way.
Our offices are located at Coolangatta, Kingscliff, Robina Town Centre, Brisbane, Sydney, and Melbourne so that you can meet with one of our lawyers at a location near you. Our Robina Town Centre office is also open Thursday night until 9 pm and Saturday morning until 12noon.
To get professional and prompt advice, contact Property and Commercial Department Manager Taylah Lein on direct line 07 5506 8208, email tlein@attwoodmarshall.com.au or call our 24/7 phone line on 1800 621 071.
