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Common misconceptions about owning a duplex and the existence of a body corporate

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Embarking into the real estate industry is a new and exciting prospect for any pThe property market is filled with opportunities and embarking on the real estate industry can be a new and exciting prospect for savvy house hunters.  Many investors and house hunters ask themselves, is buying a duplex a smart option? Attwood Marshall Lawyers Property and Commercial Partner Barry van Heerden discusses some of the common misconceptions associated with owning duplexes.

Introduction

Buying a duplex has several benefits for investors and general buyers.  As an investor, buying a 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.

The main benefit of a regular buyer is the price, which is often close to half of a similarly located detached house.  This is excellent news for first-home buyers or anyone with a modest budget pursuing a low-maintenance lifestyle in a superior location, such as retirees and down-sizers.

Duplex is the vernacular term given to units or townhouses with two lots.  The two lots are typically, but not always, separated by a common dividing wall and may have adjacent courtyards or exclusive use of an area of common property.  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.

Commonly, the two lot owners in a duplex (or even a single owner of both the lots) are not aware that 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”.

A suitable option for those looking to buy on the Gold Coast

There is a massive demand for properties on the Gold Coast, particularly by first home buyers and millennials. First home buyers who have their finances ready but have been priced-out of larger free-standing homes due to the inflation in property prices during the COVID pandemic, are now snatching up duplexes so that they can enter the market and take advantage of the more affordable price tag.

For many unsuspecting homeowners, who are purchasing a new duplex they may be unaware of their rights and obligations when it comes to body corporate and strata. 

New regulations surrounding body corporate only came into effect in March 2021, so even those that owned duplexes prior to this time may not realise that the rules have changed, and they no longer need to abide by certain regulations.  For instance, it is no longer a requirement to appoint a Body Corporate Manager for the management of their properties or to go through formal Body Corporate meetings and the voting process delineated in the Body Corporate and Community Management Act 1997.

Two-lot schemes module

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).

The SS and TL modules predominantly apply to residential community titles.  They are more accessible for lot owners to manage as these schemes generally require little regulation compared with other body corporate modules.  The SS and TL regulations act as a guide or framework for community title schemes to follow when things go wrong.

The SS applies to residential schemes of no more than six lots, while the TL applies to schemes of two lots, as the name suggests.

Some people buy a duplex or other property in a two-lot community titles scheme without realising that in doing so, they become a member of a body corporate.  As a result, clients regularly ask the Commissioner’s office if they have a body corporate.  The answer is not whether they must have a body corporate.  The answer is – that they are a body corporate.

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.

The lot owners agreement

Changes to property law in Queensland means that there is no requirement for duplex owners to appoint a Body Corporate manager to manage their properties or have any formal Body Corporate meetings and vote.

The legislation, The Body Corporate and Community Management (Specified Two-Lot Scheme Module) Regulation 2011, was introduced so that owners can enter into a “Lot Owners Agreement” to allow for the management of their properties themselves.    

Queenslanders who own lots in Residential Two-Lot Schemes, commonly known as duplexes, may benefit from entering into a Lot Owners Agreement.  By entering into a Lot Owners Agreement, the parties will have the freedom to manage their properties to suit them best.

The Two-Lot Module will apply:

1.            If there are only two residential lots in the Scheme; and

2.            The Community Management Statement identifies that the Two-Lot Module applies.  It may be necessary to amend the Community Management Statement to reflect this.

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 agreed upon 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 a Lot Owners Agreement.  This request must be in writing and state the proposed Lot Owners Agreement details.

Duplex insurance

Owners must accede to a building insurance policy covering both homes of a duplex.  A body corporate is not usually required, although this depends on the age of the duplex and its jurisdiction.  The body corporate is responsible for insuring the duplex buildings if there is a common wall between the two lots of the 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 strata title property policy.

Body Corporate insurance covers damage to the building itself, and also covers all fixtures and furnishings within the building.  In addition to covering reinstatement of buildings, the insurance does not cover normal wear and tear, but it does cover 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 insurers, the policies of both lot owners may be invalid.   The policy must be for the total replacement value of the building, common property, and corporate assets (Standard Module section 178).  The body corporate must also maintain public risk insurance.

If you are experiencing issues with the other lot owner contributing to that policy, the first step is to attempt to resolve it privately without creating conflict between yourself and that owner.  Speak to them, and if you can’t resolve the issue 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 say 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 of sharing the policy. 

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 CoolangattaKingscliffRobina Town CentreBrisbaneSydney, 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 Jess Kimpton on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au or call our 24/7 phone line on 1800 621 071.

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