We have written previously about the importance of building and pest inspections. If you’re buying a strata property, the strata report is at least as important.
As a strata owner, you are not only the owner of your unitor townhouse, you’re also a part-owner of shared property. That includes the grounds, common areas like hallways and stairs, the roof, and possibly a parking area or amenities like a pool, tennis court or gym. You become part of the owners’ corporation, or body corporate along with all your neighbours. Members of the owners’ corporation elect a strata committee to look after the shared property.
The strata report for a particular strata complex includes financial records and minutes of strata committee meetings. For someone who knows how to read them, strata reports offer all kinds of insights into the financial and social health of the strata.
There are a whole range of things to look for when you review a strata report. Here are the ones we check every time.
We start with the financial records. These let you see not just how much money the strata has, but also how it spends that money, or at least how it spent money in the past.
Key points of interest include:
This shows what major maintenance or improvement projects the Strata Committee is planning, including a planned timeline and budget.
If the Capital Works Plan appears underfunded, that’s one red flag to consider. Owners may find that strata fees are raised, or that a one-off special levy is imposed. If you buy the property and are part of the owners’ corporation, this will affect you directly.
As a real-life example, we’ve recently had two clients purchasing in the Zetlands area. The strata reports showed that the capital works fund is $4 million in debt. A property can look like a bargain for the area it’s located in, but if there’s that level of debt, any purchaser is going to need reserves to deal with that situation.
One of the Zetlands properties had spent $650,000 on engineers’ building reports for the complex.
We advised the client against buying it. If the reports alone cost more than half a million dollars, the defects have to be extensive and severe. We also discovered litigation against the builder. That report ran to over 2,000 pages. That’s a lot of time, money and effort, and the situation still wasn’t resolved. That’s not a scenario you want to buy into.
Special Levies are, by definition, unusual expenditure! If they’ve been raised frequently in the past, it’s a good idea to understand why and whether that’s likely to occur again.
Sometimes strata committee meeting minutes will show that Special Levies were suggested, but not raised. That’s another red flag. It could mean that an issue has not been addressed for some reason – and when issues aren’t addressed, they usually get bigger.
The minutes may also provide insight into disagreements and disputes within the strata committee, or between the strata committee and some owners. You may need to read between the lines: for example, what issues are raised year after year after year, but not actioned?
While some difference of opinion is only to be expected, too much disagreement stops the strata running effectively. That’s not a good environment to buy into.
You might think that a new complex won’t have any issues, but that’s not a great assumption to make. It’s just as likely that there are issues, but they haven’t all come to light yet. Or perhaps they have, and they’re in the strata report as a list of maintenance projects.
There have been some high-profile cases of new apartment blocks in Sydney with all kinds of issues. While the strata report will have less history than for an older complex, it’s still worth checking as part of your due diligence. A single unexpected maintenance issue is a red flag in relation to build quality. (Needless to say, we also recommend building and pest inspections for new properties, for the same reasons!)
One of those Zetlands properties looked like a bargain. At first glance, it was seriously undervalued for the neighbourhood. The strata report showed why.
We see this all the time. If something looks too good to be true, it probably is!
Any property you buy is a major investment. When you buy into a strata scheme, you also buy into a complex and a community. You have less individual freedom to do what you want with your property. You also have shared responsibility for shared property – with people you don’t know and can’t choose.
When you look at all the costs of buying a property – the property itself, moving, renovations and so on – it makes sense to conduct all inspections and review strata reports. The few hundred dollars you save by not doing this is tiny by comparison. And the downside if you don’t do it and there’s an issue you don’t uncover can be huge! That affects you financially. It can also turn the experience of buying your dream home into an ongoing nightmare.
At Contract Conveyancing, we look at strata reports every week. We know what to look for. We’re good at spotting when something’s ‘off’, and not quite what we’d expect for that property. That’s part of the service we provide to clients.
Our experience shows that – whether you work with us or with someone else (we hope you choose us) – it’s always a good idea to access and review the strata report.
