When buying into a strata scheme, the most important thing a prospective purchaser can do is their due diligence. This is absolutely crucial and cannot be highlighted enough as the price of ignorance can be very costly indeed.
Going through the Body Corporate records through a strata search can be the best way to know what you are getting into because body corporate records tell their own tales.
Body corporates are just groups of people making decisions for and on their own behalf and legislation requires those decisions take certain formats and be recorded in certain ways. The end result should be a complete history of the life of a building and its owners.
Why perform a Strata Title Search?
For most people, buying in strata will be one of the largest purchases in their life and it pays to do a thorough inspection of the property’s history.
Records will highlight major defects, noise issues, expected large expenses and much more so you can avoid any surprises after you sign the contract.
Even with the obvious benefits, you would be surprised at the fact that the majority of potential purchasers often pass on the opportunity to do a search of body corporate records.
How A Pre-purchase Strata Search Is Done?
Doing a strata search is very easy and anyone can do it. All you have to do is:
- Obtain written authority – body corporate records are private information and may only be viewed by authorised persons (a potential purchaser is definitely authorised)
- Make an appointment with the Secretary or Body Corporate Manager to view the records
- Attend the appointment and pay the fee
- Read through the records and make a note of anything out of the ordinary
It is that simple.
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 for 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.
Red Flags in a Strata Search
While not all the following red flags means that the body corporate is poorly run, or the building is a dud, however, if you encounter any of these red flags you will need to get to the bottom of the issue.
Very few body corporates will have absolutely zero issues.
Buildings where the records seem too good to be true could be just an exceptionally well-run building or the owners could be hiding something, usually to protect property values. Ideally, you want to see records of problems occurring, being addressed and resolved – not a squeaky-clean cover-up.
And that’s what a strata search is all about – Finding the red flags and then finding out why they’re happening.
Things to Look for in a Strata Search
- A significant increase in levies – If the levies are increasing substantially something has happened or is about to happen that requires more funds. Find out what that is.
- A deficit in body corporate funds – A deficit in body corporate funds could be as simple as a innocuous timing issue or alternatively it could mean there are major financial problems. Find out what’s causing the deficit.
- Many lot owners in arrears – When lot owners don’t pay their levies the burden of keeping the body corporate afloat falls on those are paying. What’s the situation? And is it temporary or an ongoing issue?
- The body corporate has Creditors – Levies should be issued and collected in before being expended. Creditors are rare. Why are they not being paid?
- A special levy has been issued – Expenditure is required outside of what has been budgeted for. Why is the special levy required? How large is it and when is it due? Is it likely to result in a substantial increase in levies?
- A building defect report – A report on a building problem is commissioned when the issue is complex and requires input from a building professional to determine problems and find a resolution. What are the symptoms?
- An Extraordinary General Meeting – EGM’s are called because the business to be voted on requires a resolution of all owners that cannot wait until the next Annual General Meeting. What is the issue(s) being decided?
- Issue of a Continuing Contravention Notice – The Committee has a problem with something that someone is doing within the scheme. Find out who and what?
- Appointing a solicitor to act on behalf of the body corporate – The body corporate is dealing with a legal matter that requires advice
- Invitation to make a submission – The body corporate or another lot owner has made an application for adjudication with the Commissioner Body Corporate & Community Management. Find out what the dispute is?
- The body corporate manager has changed – This usually occurs because of dissatisfaction with the previous body corporate manager. Why were the dissatisfied? What has changed? Get the whole story.
- A Committee member has been dismissed – dismissal of a committee member, or an entire committee, is very rare. Find out what the issues were and whether removing them resolve those issues?
- There is no up-to-date insurance Valuation – An Insurance Valuation is required under legislation and its also a tool for ensuring the scheme is adequately insured. If there is no valuation it’s possible that the building is under / over insured. Over-insuring is a waste of money whilst under-insuring puts everybody at risk.
- The scheme is not insured for the full-valuation amount– Under legislation body corporates are required to have an up-to-date insurance valuation and must insure for at least that much. If they’re not, why not?
- An expired or no Sinking Fund Forecast – body corporates are required to have a Sinking Fund Forecast which estimates future works and costs for at least the next 10 years. If the report is not there or is expired, why?
- A late or missed AGM– body corporates have time frames for AGM’s and a delay is meant to be approved by the Commissioner. Most delays happen because quotes are being obtained for works to be voted on. Make sure you find the reason behind any late AGM. Body corporates have late AGM’s all the time however it’s rare to miss an AGM altogether. When AGM’s are missed it’s a clear indication of problems with the body corporate management, be it contractor or Committee, probably both.
- The body corporate manager has abruptly resigned – If a body corporate manager resigns it generally indicates that the Committee is doing something the body corporate manager is uncomfortable with, usually in contravention of legislation. Alternatively it may indicate the behaviour experienced by the manager is unacceptable.
- There are very few body corporate records – Even a small building will generate a fairly hefty amount of paperwork over the years. If there are few records that either means they’ve been destroyed or lost or the details were never recorded in the first place. Neither should inspire confidence.
- There is no Community Management Statement or by laws – The Community Management Statement is a foundation document. It’s surprising then how many body corporates don’t have a copy, or for older buildings, a copy of the registered by laws. It’s an indication that things might not be managed according to legislative requirements, and indeed the registered requirements of the scheme.
- There are no Fire Safety Records – Fire safety regulations for strata buildings are pretty strict and for very good reasons. Fires are dangerous. You want to see in body corporate records that body corporates are giving thought to minimising fire risk and promoting safety as well as complying with legislation. No mention of Fire Safety is a massive red flag.
Professional Search Agents
While you can definitely conduct a strata search yourself there are professional search agents who can lend their expertise.
benefits of appointing an agent are:
- Location – purchasers don’t always buy where they live so you may want to engage a searh agent who is in the area
- Speed – search agents are quick and efficient
- Knowledge – a reputable search agent will have a comprehensive knowledge of body corporate processes and can query anything that seems odd
- Established relationships – search agents build relationships with body corporate managers which means they are more likely to get questions answered promptly
- Convenience – most people are busy and don’t have the time to do a search themselves.