A MUST read for Apartment and Unit buyers

Recent well publicised events such as the Sydney Opal Towers structural issues and the cladding fires in Melbourne, have again put the spotlight on the role of Owners Corporations when something goes wrong.

Owners corporation/Strata Corporations, or in old language, Body Corporates, manage the common property of a multi lot development. These developments can be residential, commercial, retail, industrial or mixed-use property developments.

These entities are responsible for managing the development, administering common expenses, organising Insurances, repairing and maintain the common property.

And, just like so many things in our great country, each state has its own legislation and rules.

So, I’m going to talk in a general sense rather than State by State.

Typically, the common property that is managed will include, but not limited to:

  1. Slabs and floor space dividing one storey from another;
  2. External boundary walls;
  3. Pipes and electrical wiring shared by multiple lots in the development;
  4. Stairwells and elevator cores;
  5. Essential Plant & Equipment such as the elevators themselves;
  6. Hallways and foyers; and
  7. Driveways, gardens, gymnasiums and sports facilities.

Each year, each owner will be asked to contribute a financial contribution to ensure the Owners Corporation has sufficient funds to discharge its obligation as well as, typically, putting some extra funds aside for cyclical maintenance of a larger scale. This is usually called a “sinking fund”.

The proportion of contribution is made according to the Unit Liability/Entitlement as noted on title.

So, what could go wrong??

The answer is plenty!

I am going to pose some of the following questions any buyer or owner should be asking?

  • What if not all owners pay the required contributions in a timely manner and the Owners corporation cannot discharge its obligations due to lack of funds?
  • What if the buildings the buildings are not adequately Insured ? (an Owners Corporation responsibility is to organise insurance)
  • What if major repairs or maintenance is required? (like rectifying cladding)
  • Are the rules that manage the conduct of owners and tenants being adequately overseen?

Remember if an issue occurs it can have an adverse effect on capital value.

My advice is to do very careful research prior to purchasing in a multi lot building.

Whilst there are basic disclosure laws in most states for Vendor Statements and what must be disclosed, that does not mean you can’t dig deeper.

At Preston Rowe Paterson, we would typically undertake the following checks to ensure satisfactory due diligence prior to a purchase:

  1. Try and get copies of the Owners Corporation minutes and understand what the delinquencies in owners’ fees are.
  2. Seek to clarify from the Owners Corporation or building manager whether or not the building has been audited for the presence of combustible cladding and if so, what were the results.
  3. If the building is older the same questions should be asked about issues such as asbestos.
  4. Ask the question as to the results of the last fire safety audit and as to whether building was compliant or not. The retro fitting of fire suppression systems can be very expensive and disruptive.
  5. Ask existing owners or tenants about any ongoing issues.
  6. Try to get an understanding as to whether the majority of owners are owner occupiers or investors. (in my experience the higher the level of owner occupation the better chance that there will by higher scrutiny on ensuring the Owners Corporation is running smoothly)

That all being said, the trend to higher density living is prevalent for a reason. It provides an affordable opportunity to those wanting inner city living and lifestyle opportunities.

Just remember that when you are making any investment decision, go in armed with the facts and with your eyes open.

If you need a hand contact your local Preston Rowe Paterson office at www.prp.com.au

 

About the author:

Greg Sugars OAM is the CEO of Preston Rowe Paterson and a Fellow of the Australian Property Institute and a Fellow of the Royal Institution of Chartered Surveyors.

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