Mixed-use developments are increasingly popular, combining residential apartments, retail spaces, offices, and sometimes public facilities like libraries or community centres within a single building or complex. Properly structuring these developments is crucial to ensure that the diverse needs of all occupants are met and to minimise potential conflicts.

One of the key considerations in planning a mixed-use project is deciding how to subdivide the property. Should you use a strata subdivision or a stratum subdivision (followed by strata subdivision)? The structure adopted can often have significant implications of the future value of the development, this article will guide you through the differences between these two methods and help you determine the best approach for your project.

Understanding the Basics

Strata Subdivision

• Definition: Divides a building into individual lots and common property under a single strata scheme.
• Usage: Suitable for simpler developments where uses are similar or easily managed together.
• Management: Governed by an Owners Corporation (also known as a Body Corporate), which manages the common property and enforces by-laws.

Stratum Subdivision

• Definition: Divides a building into separate stratum lots (three-dimensional spaces), each of which can be individually owned or further subdivided by strata plans.
• Usage: Ideal for complex mixed-use developments with distinct components (e.g., residential, commercial, retail) that require separate management.
• Management: Each stratum lot may have its own strata scheme, and the overall building is managed through a Building Management Committee (BMC) under a Strata Management Statement (SMS).

Option 1: Mixed-Use Building Subdivided by a Single Strata Scheme

When to Use This Method

• Simpler Mixed-Use Developments: Suitable when the building primarily serves one purpose (e.g., residential) with minor additional uses (e.g., a few small retail shops).
• Manageable Diversity: When the interests of different occupants can be effectively managed under one Owners Corporation.

Key Considerations

• By-Laws: Customised by-laws are essential to address the specific needs and rights of different occupants.
  • Examples:
    • Granting exclusive use of certain common areas to commercial tenants (e.g., outdoor seating for a café).
    • Regulating signage for commercial units.
    • Allocating maintenance responsibilities for specific equipment (e.g., grease traps, exhaust systems).
    • Excluding certain units from contributing to the costs of facilities they do not use (e.g., lifts, gyms).

Advantages

• Simplicity: One strata scheme means a single set of management rules and a unified approach to maintenance and administration.
• Cost-Effective: Potentially lower administrative costs due to a single management structure.

Challenges

• Potential Conflicts: Diverse interests may lead to disagreements over cost-sharing, use of facilities, and building management decisions.
• Complex By-Laws: Requires carefully drafted by-laws to ensure fairness and clarity for all parties.

Best Practices

• Engage Specialists Early: Consult with experienced strata consultants and lawyers during the planning stage.
• Disclosure: Ensure all by-laws and management arrangements are disclosed to prospective purchasers before marketing the development.

Option 2: Stratum Subdivision Followed by Strata Subdivision

When to Use This Method

• Complex Mixed-Use Developments: Ideal for large buildings with significant residential, commercial, and retail components.
• Distinct Management Needs: When different parts of the building have unique operational requirements and should be managed separately.

How It Works

1. Stratum Subdivision: The entire building is first subdivided into stratum lots, each representing a different component (e.g., residential units, commercial offices, retail spaces).
2. Further Strata Subdivision: Individual stratum lots can then be subdivided into separate strata schemes if needed (e.g., the residential component becomes its own strata scheme).

Management Structure

• Building Management Committee (BMC): Comprises representatives from each stratum lot owner, including any Owners Corporations from strata schemes within the building.
• Strata Management Statement (SMS): A legal document registered with the land registry that outlines:
  • The shared facilities and their management.
  • Cost-sharing arrangements for maintenance and operation.
  • Rights and obligations of each stratum lot owner.

Advantages

• Tailored Management: Each component can be managed according to its specific needs without impacting other parts of the building.
• Reduced Conflicts: Separate management reduces the likelihood of disputes between different user groups.
• Clear Cost Allocation: Costs for shared facilities are allocated based on agreed percentages reflecting usage.

Challenges

• Complexity: Requires detailed planning and legal documentation.
• Higher Initial Costs: More intricate setup may involve higher professional fees during development.

Best Practices

• Engage Experts: Work with specialist strata surveyors, consultants, and lawyers experienced in mixed-use developments.
• Early Planning: Review architectural designs early to determine:
  • The number and boundaries of stratum lots.
  • Shared facilities and cost allocation percentages.
  • Necessary provisions in the Strata Management Statement.
• Transparency: Clearly communicate the management structure to potential purchasers.

Shared Facilities and Cost Allocation

Understanding Shared Facilities

• Definition: Areas, services, or equipment used by multiple occupants within the building (e.g., elevators, fire safety systems, car park entrances).
• Importance: Proper management and maintenance are crucial for the safety and functionality of the entire building.

Cost Allocation

• Determination: Costs are divided based on the percentage of usage or benefit derived by each stratum lot or unit.
• Documentation: The Strata Management Statement or by-laws should clearly outline:
  • The list of shared facilities.
  • The cost-sharing formula for each facility.

Conclusion

Every mixed-use development is unique, and choosing the right subdivision method depends on the specific characteristics and needs of your project. Here are key factors to consider:

• Complexity of Uses: The more diverse and substantial the different uses are, the more likely a stratum subdivision will be beneficial.
• Management Needs: Separate management structures can reduce conflicts and allow for tailored services.
• Cost Implications: Weigh the initial setup costs against long-term management efficiency and harmony among occupants.
• Legal Requirements: Ensure compliance with relevant laws and regulations, and that all documentation is meticulously prepared.

Next Steps

If you’re planning a mixed-use development, it’s essential to consult with professionals who specialise in strata and stratum subdivisions. They can provide:

• Strategic Advice: On the most suitable subdivision method for your project.
• Design Input: Recommendations to minimise shared facilities and streamline management.
• Legal Documentation: Preparation of by-laws, Strata Management Statements, and other necessary legal instruments.
• Project Coordination: Assistance in navigating the complexities of registration and compliance.

How We Can Help

Our team of specialist strata surveyors has extensive experience in structuring mixed-use developments. We offer comprehensive services to ensure your project is set up for long-term success.

• Consultation: We’ll assess your project’s needs and recommend the optimal subdivision strategy.
• Planning Support: Collaborate with your architects and planners to align design with management efficiency.
• Ongoing Support: Provide guidance throughout the development process and beyond.

Get in Touch

Ready to take the next step? Contact us today to discuss your project and learn how we can assist you in creating a harmonious and well-structured mixed-use development.

• Phone: (02) 9286 2548
• Email: office@plsv.com.au

By carefully considering the subdivision method and engaging experienced professionals, you can ensure that your mixed-use development meets the needs of all occupants and operates smoothly for years to come.