Allison Benson, Kerin Benson Lawyers and Paul Mulligan, Founder and Licensed Real Estate Agency of Paul Mulligan Property Group discuss what steps to take when buying into a strata scheme.
Across Australia, the growth of strata title buildings is continuing. Over the Christmas break, NSW residents would have looked on in horror at the structural defect concerns raised at the Opal Tower building in Olympic Park causing an evacuation of the complex. While the Opal Tower situation is obviously an extreme one, it did get me thinking about what to look out for when buying into a Strata Scheme.
When buying into a strata scheme, the most important thing is to do your due diligence. This is absolutely crucial and cannot be emphasised enough. Don’t hide under your desk avoiding it.
Three key areas to consider when buying into a strata scheme:
If you are buying off the plan you should research the builder and the developer
- Use the Fair Trading licence check to see if they have the appropriate licence and whether they have had a disciplinary action taken against them
- Look at their website to see what other developments they have been involved with
- go out and look at those other developments and
- if you can, talk to an owner occupier to see if they have had any building related issues.
Studies have found that approx. 80% of new buildings have defects. As a potential purchaser of a strata scheme, you should be aware of this and be investigating what approach the builder has to remedy building defects. For instance, have they previously gone back to site to repair the defects or have they been dragged kicking and screaming to site to face their obligations?
This research won’t protect you against building defects but at least you will know what the developer and builder’s approach to defects will be.
Seek legal advice and have your lawyer or conveyancer obtain a strata search
In all too many of the cases that I see lot owners did not want to spend the money to obtain a strata search before buying into a Strata Scheme and they have had an unpleasant surprise. After you obtain the strata search, read it. That’s right, don’t just obtain one, actually read it.
What you want to see is a well-run scheme with no or few disputes. The strata search should at a minimum contain financial reports for the scheme, meeting minutes and also indicate if there have been any disputes in the scheme, and in particular with your lot. Reading the report may lead to further questions such as:
- is there enough money in the capital works fund – if not you may find a special levy in the future to cover a repair.
- why there is such a large amount being spent on consultant’s fees? Does this mean there are issues with the building? Does it mean professional services such as lawyers have been engaged and if so, what for?
- why has a dispute arisen? What steps are being taken to resolve it? Will it mean there will be a special levy in the future?
This is not to say that any of the above is necessarily a negative. It just means that if you know there may be an issue you can budget for it or consider it when deciding whether or not to buy the lot. For instance, if you know the vendor has complained about noise you should consider that you may also have the same issue. If you can see that pets are banned, do you really want to have to challenge the by-law doing so?
Read the by-laws for the scheme
They are part of the contract for sale. They are the rules by which you, or if you are fortunate enough to have an investment property, your tenant must live by. The by-laws may, for instance, restrict pets, restrict smoking, restrict the use of your lot or enable certain works to be conducted. By reading the by-laws you will understand, before buying into the strata scheme, what the rules of your new community will be.
You should also read the by-laws to double check to see if any works to your potential new home were authorised and, if they were, on what conditions. This is important when buying into a Strata Scheme. Why? If you go into a 1980’s building and notice that the bathroom has been completely renovated then it is extremely likely that the common property was altered in doing so. If so, the lot owner should have obtained a by-law to authorise that work. In the case of bathrooms, common property involves the waterproof membrane which is damaged when tiles are removed and replaced. Most works by-laws require the owner of the lot (which would be you if you purchased the lot) to be responsible for any damage caused due to the renovations. If for instance, the waterproof membrane fails in the future you may be required by the by-law to remedy it.
Again, buying into a Strata Scheme, I cannot emphasise how important research is. It may not save you in all cases but at least it should mean that you are going into the purchase with your eyes wide open.
This is general advice and is not meant to be relied upon. Please seek legal advice specific to your station.
This post appears in Strata News #224.
This article has been republished with permission from the author and first appeared on the Thoughts from a strata lawyer … website.
Why is a Strata Inspection Report so important if I am considering buying a Unit, Apartment, townhouse villa or commercial property within a Strata Scheme?
Buying into a Strata Scheme may be one of biggest financial decisions that you may make in a lifetime!
We often get calls from prospective purchasers about a Strata Inspection Report. The first questions most potential clients ask is: How much do you charge for a Report? Most property buyers do not really understand the importance of the report.
This is completely understandable, as property buyers generally only purchase a property once in a lifetime and we complete 100’s of reports. A Strata Inspection Report can cost as little as $250 to $350, it generally depends on how many Lots (apartments) form part of the Strata Scheme.
If you think about it a building inspection report is around $400+. The information a Strata Inspection Report will be far more valuable to you if you are purchasing a property within a Strata Scheme.
So what will a Strata Inspection Report tell me?
- Are there any Special Levies been raised or past special levies.
- How much money is in the administrative and sinking fund?
- Are there any known major issues such as building defects, proposed major expenditure?
- What is the Scheme’s rules with keeping an animal?
- Is the building insured?
- Does the building comply with the Strata Schemes Management Act? (Work Health & Safety Act, Asbestos Management, Fire Compliance, had a property valuation in the past 5 years).
- Is there enough funds to cover any potential major expenditure?
- Is there currently any legal matters.
- Is there any disharmony in the building?
- Are there any special By-Laws and will they affect me?
- Are the strata levies up to date or in arrears?
- Expenditure over the past 3 years.
- Are there any known plumbing issues.
Why is this important to me as a prospective purchaser?
Buying into a Strata Scheme you become part of a Strata Scheme, if for example something major happens to the common property and there is insufficient money in the sinking and administrative fund a Special Levy, may need to be raised and if this levy has not been raised prior to you purchasing, you will be responsible for part of this special levy.
Some buildings do not comply with current Council Fire Regulations if Council issue a notice to comply this can be very expensive and problematic if there are insufficient funds. Generally, an engineer will need to be appointed to assist the Owners Corporation to comply. Depending on the size of the building this can run into $10,000 to $100,000’s of dollars.
A Strata Inspection Report can be more important than a Building Inspection Report, as it reports on known issues within the building where a building inspection will only report on issues within the unit you are considering purchasing. When buying into a Strata Scheme an owner is generally responsible for a proportion of any outstanding major works.
Buying into a Strata Scheme without a Strata Inspection Report is complete madness. It could save you $10,000’s or $100,000 if there are inherited issues.
- What is a Strata Inspection Report?
- NSW: Q&A Should a Free Strata Report be available at inspection?
P: 0417 766 009
About the Author: Paul Mulligan has been in the real estate industry for 20 years and is the holder of an NSW Real Estate Agent’s Licence. He is the Principal of Paul Mulligan Property Group, a Real Estate Buyers Agency. He helps home sellers select a Real Estate agent when they are selling and he is a Strata Inspector.
For more information on matters such as buying into a strata scheme, more details about strata inspection reports or information about strata living in your state or territory, visit Renting / Buying / Selling Strata Property, Strata Plan / Strata Inspection Report OR Strata Information Pages by State.