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.
The most interesting thing to note, given my years in Strata, is that many owners do not take it upon themselves to self- educate about Strata and what they are buying in to.
Special Levies are an ongoing issue and truth be told they can be avoided in some cases where effective and strategic Sinking Fund budgetary measures are otherwise not in place. The Sinking Fund and Owner contributions should be commensurate with the expected/forecast infrastructure/asset replacement and upgrade, too low is a sure sign of a Special Levy ahead and too high spells major capital works and increased levies each year to ensure the money is there.
Knowledge is power, read, ask and educateL
Hi Bailey.
In one sense, the lines “The strata manager was unavailable for comment” should be written on every strata report.
S182(3) provides the details of the records to be made available for inspection by the OC.
No strata manager should comment on those reports or add verbal advice in regard to the building. If a sale is lost due to the verbal comments of a strata manager, then that manager and his or her firm could be liable to be sued if the owner can establish loss.
A strata search allows a search of documents only. The documents should represent the position of the OC without comment by the strata manager.
I know we live in the real world and agents do make comments, sometimes unwisely. The agent is the agent of the OC, not the possible buyer. The strata manager must not provide a false view in the documents, but really should not add anything to them.
I would be interested in your view.
Frank.
Hi Frank,
These words are an important alternative position to that stated in the newsletter. Unfortunately, documents often tell a worse story then the reality. Sometimes, an agent can provide some guidance that create a better picture for a buyer.
Bailey