Buying a Property with Defects

By Bailey Compton 15 Dec 2023


You would have to be living under a rock if you hadn’t realised that there is a crisis in the price of apartments across Sydney. This has been created by reports recounting defective buildings. Undoubtedly, we are in a marketplace where bad builders have created bad problems for owners of strata schemes.

If you are buying an apartment, we suggest to all buyers:

  1. Obtain a strata report; and
  2. Have the financial information set out in the strata report analysed.

There are a number of documents that should set out the financial outcomes or the future projection of an owners corporation:

  • A budget needs to be done on an annual basis to ensure that all the administrative costs of an owners corporation is paid;
  • A capital works plan should be done every 5 years to identify what capital works need to be undertaken in the next 10 years;
  • Costs in relation to the administrative fund and a capital works fund; and
  • Quarterly and annual financial report.

The strata report is important for the following reasons:

  1. It will identify discussions regarding defects in the building;
  2. It should either start or complete discussions regarding rectification of those reports;
  3. It will give you the future and current financial status of the building.

What is important to a decision?

  1. Obviously, you need to understand what the future levies are. These can be obtained from the previous annual general meeting or under the section 184 certificate provided to your licensed conveyancer or solicitor to identify whether you can afford the property.
  2. The capital works plan will identify what needs to be done in the future. It will identify how much the owners corporation will have to spend on the future.
  3. The administrative fund is not important. This should be full one minute and empty the next as it relates to the exact spend by the owners corporation. It is the capital works fund that is important. If there is not enough money in the capital works fund, and the capital works plan and other information provided indicate there is a defect, a special levy is likely in the future. You should always take into account how much you may have to spend in the future and add it to your prospective purchase price. This will assist you to identify whether your property is good value or not. It also allows you to plan.

Knowing what you are getting and what you have to pay is a vital cog to any decision to purchase a unit. Units are great value at the present time and provide an opportunity to enter the market. Nonetheless, don’t be a scab and get a report which allows you to make an informed choice.