QLD: Strata lots should not be a set-and-forget investment

Three things to know about staying involved in your body corporate:

1. All lot owners owe it to themselves to understand the operation of their building
2. A scheme without continual owner oversight risks financial problems
3. Left unchecked, financial problems can lead to massive investment losses

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One of the most frequent issues that comes up in strata is the lack of people’s involvement in their buildings.

A person might have spent half a million dollars or more to buy a lot, but then don’t participate in any way with the body corporate decision-making process such as voting at general meetings, reading committee minutes or otherwise.

People are busy

I used to regard this as apathy but now recognise it is more reflective of people having a lot going on in their lives.

The daily existence of relationships with spouses, kids, parents and friends is a lot. Add in mortgages, jobs, businesses, investments or what’s going on in the Middle East or Ukraine or elsewhere and there are plenty of things that might distract a person from keeping an eye on an investment they think is under control.

If you’ve just bought a strata unit, maybe getting involved in the annual general meeting is number 132 on your list of things that you want to do that week.

But you have to stay involved.

Keep an eye on the ball

There have been several examples recently where bodies corporate have fallen into substantial financial distress because everyone was ignoring what was going on with the scheme’s finances and obligations.

See the links at the bottom for details. Each of these has come about because people have stepped away, let the committee and others get involved in running the scheme and have simply ignored what was going on.

Owners face massive special levies

One of the common understandings about bodies corporates is they can’t go insolvent.

There is a catch to this though. A body corporate cannot go insolvent because if it cannot meet its financial obligations, it has to strike a special levy on all of the owners in their respective proportions for the amount that it’s short.

So every owner is carrying that contingent liability if things go wrong.

And one of the things with bodies corporate is that they don’t tend to go wrong immediately; it’s a long, slow, drawn-out financial affair.

Stay involved

For this reason, it is vital for everyone in strata, no matter how busy their days might be, to keep a quiet eye on what’s going on in their body corporate – particularly from a financial perspective – and ask questions if they need to.

There is no downside to understanding what is going on, but there is certainly some downside to ignoring what might be poor management or a slow-moving train wreck that might take years to eventuate but will potentially impact your investment in a substantial way.

Stay involved because the alternative can be costly.

Frank Higginson
Redchip Strata Law
E: FrankH@redchip.com.au
P: 07 3193 0500

This post appears in Strata News #809.

This article has been republished with permission from the author and first appeared on the Redchip Strata Law website.