We are all aware that Owners Corporations don’t want to spend to maintain and repair. Worst, however, is the Owners Corporation who is dragged into building defects claim.

A recent client of ours was looking to purchase a unit in a strata scheme. It is our policy that, those people should always receive an independent strata report and not to purchase the strata report from the selling agent. If the vendor has got the report, the report will be designed to promote the property.

This strata report was in relation to a 58-unit development. The capital works fund sat at $80,000.00 and the administration fund was in a deficit of $9,000.00. This meant that, there was $71,000.00 cash at bank. The report then showed that:-

 

  • A case had been initiated against the original owner of the premises, seeking the repairs to the building. Legal fees had already reached $165,000.00 and the matter is yet to come before the Court. Further special levies will need to be raised.
  • The report has indicated that the building has been built with combustible cladding. A notice has been received from the Council regarding a cladding replacement strategy.

 

Therefore, we have a strata scheme without much money, building defects, and a non-compliant cladding. An absolute recipe for future special levies.

There were two lines saying the same thing in the report which most concerned Leverage. They were “The Strata Manager was unavailable for comment”. Clearly, this building was a disaster zone.

The advice we provided to our purchaser was simply that, “it is a good purchase if you add $80,000.00 to the purchase price and you still think it is a good price”. Our clients withdrew from the sale.

Buildings that suffer from not having sufficient money in the capital works fund and have more to sell will always lose value. We have seen other strata schemes looking to address this obvious dilemma, but $258.00 a quarter from each of the lot owners will not change the position of this building. Special levies are in inevitable.

What everyone needs to understand is that, once these issues are bought to the attention of the selling agent, the Selling Agent has to advise all purchasers. Section 52 of the Property and Stock Agents Act 2002 requires that all material facts that lead to a person’s decision to purchase a property must be disclosed to that person. The report on this building has now been made aware to the agent and the Selling Agent will have to disclose any person who wishes to purchase property in that building.

Strata schemes need to recognise that deficient capital works funds leaves to a devaluation of individual lots.