Before you buy a property, you must do your due diligence to fully understand what it is you’re buying, especially if it’s a strata property.
Unlike a house, when purchasing within a strata scheme, it’s not just the lot or apartment that you own. You will also have a share of the common property, determined by your unit entitlement, for which you are responsible for its maintenance and repairs via paying quarterly strata levies.
The amount that you pay all depends on various factors including:
- Age of the building
- Size of the building
- The number of repairs and maintenance work involved
- Type and amount of common property facilities (a scheme with swimming pools, gyms and concierge service costs more to run than a scheme with limited facilities)
It’s important to review the owners corporation records to gain invaluable insights into the scheme, including its financial health that could indicate whether purchasing in this scheme is a sensible decision.
Keep in mind, that a strata report is compiled by the strata committee and owners corporation and the level of detail provided will differ from scheme to scheme. Record-keeping can be hit and miss, especially if there is no strata manager to help, so even if the strata report looks promising, this doesn’t necessarily mean everything within the building is fine.
What is a strata report?
A strata report includes a history of the building, along with important information about living in a strata property. This includes the financial status, any pending building works, special levies, past works history and all expenses for the past two years. It should also include a 10-year capital works plan and forecasting, by-laws and any potential problems such as disputes, which could make living in the scheme a poor experience.
Here are just some of the key things to pay particular attention to:
Healthy bank balance
Each lot owner is responsible for paying their share of strata fees every quarter, used towards the day-to-day maintenance of the scheme such as cleaning, gardening and minor repairs (Administrative Fund levies) or larger capital expenses (Capital Works Fund levies). Having a healthy bank balance is important to ensure that the strata scheme is well maintained before any issues become too serious and costly. If there are insufficient funds, owners can be forced to pay additional fees via a special levy to cover the costs, which can be unexpected and put financial pressure on owners. It’s best to check that there are sufficient funds available to reduce this financial strain. If your strata scheme needs to register for GST, a levy increase of 10% will also apply.
At the same time, it’s worth checking that the insurance is current, matches valuation and should not be more than five years old.
Capital Works Fund
Every building has to have a Capital Works Fund completed. This plan is for 10 years, commencing at the first Annual General Meeting (AGM) and must be reviewed every five years. Be sure to check how current this is and review the expected types of work required over the upcoming years. This can be a good indication of the amount of money required to cover these costs and the state of health the building is in.
By-laws are a set of rules that must be adhered to by all owners and tenants. Rules include pet ownership, noise, parking, smoking, renovations, short-term letting and more. Be sure to carefully read the by-laws to check if any laws might impact your lot or the type of lifestyle you like to lead as each strata scheme has its individual by-laws.
Major defects or planned building works
Major defects and works not only can affect everyday living due to noise and interruptions from contractors entering the scheme and common areas daily. It can also have a financial burden on owners and could end up costing you a lot of money to resolve, such as combustible cladding or new windows required throughout the building.
By looking at past capital works, this can often indicate whether defects are an ongoing issue in the building, in which case, it’s best to steer clear of this property purchase.
How well do tenants get along? Reviewing committee minutes and email correspondence can shed some light on the type of strata community and whether it’s a peaceful one, or whether there are many ongoing disputes. The details in the records can provide prospective buyers with an indication as to how the strata scheme is run and how disputes are handled by the owners corporation. Mediation and applications to NCAT (NSW Civil and Administrative Tribunal) may not be a good sign, especially if disputes aren’t easily resolved in-house.
Poor strata management
Along with tenant disputes, it’s important to get a handle on how proactive your strata committee is. Make sure you read all available meeting minutes and any written correspondence to determine how they respond to issues and whether problems are fixed promptly. Also, pay close attention to important paperwork such as financial records and how up to date they are and whether they comply with current legislation.
Find out more
To learn more about strata reports, speak to the friendly team at The Strata Collective today.