Buying a strata title property: understanding strata documents
Buying a strata property isn’t like buying a freestanding home. You and the other owners will need to make decisions together about the upkeep and maintenance of the common property, how much your fees are and what they should be spent on.
You also have to abide by the default rules of the scheme. These might include when you can make noise and where you can park.
It can sometimes feel like having housemates, but without the chore roster.
When you buy into an existing strata title, it’s good to know what you’re getting into. You don’t want to spend all that money only to find that the roof needs replacing or the current committee has decided the building needs to be painted a fluorescent shade of pink.
That’s why sellers of strata property have an obligation to disclose all the relevant information about the property so you can make an informed decision.
That includes the documents relating to the strata scheme and owners’ corporation such as:
- The Unit Title certificate, or Section 119 certificate. This is a legal document issued by the owners’ corporation. It tells you what the current levies are for the unit, whether contributions are up to date, the balance of the owners corporation funds, information about insurance policies including certificates of currency, and who is on the executive committee.
- A copy of the units plan (or proposed units plan if the development isn’t finished), as well as the schedule of unit entitlements.
- A copy of the last two years’ worth of minutes from the owners’ corporation. These will generally be limited to AGM minutes. To find out more about what happens at an AGM, click here
This information will arrive in a big bundle of paperwork along with the contract of sale and other documents.
It’s important that you read through it, but what are you looking for?
Aaron Lewis, sales agent with Independent North & Inner City, specialises in helping his clients understand these complex documents.
“In general, you want to see that the scheme is well run,” he says. “Regular meetings, clear minutes kept, plans in place for maintenance etc.”
Past that, though, what are you looking for? The following things are all aspects you should take into considerations.
The Section 119 certificate will tell you what the strata levies are for the complex. “The selling agent should advertise these,” says Aaron, “but it’s worth double checking them for accuracy. The certificate should contain the forecasted levies over the next three to six months, so check if they’re due to increase.”
In particular, look for a special levy. “That means that the complex is saving for something. The minutes should tell you what it is, but if it’s not referenced, make sure you find out.”
Before we get into it, here's a brief refresher on what the different types of strata fee are for.
Administrative fund levies pay for regular and ongoing costs. These might include building insurance, gardening, cleaning, any shared utilities and professional strata management fees.
Sinking fund levies cover larger expenses. This is how a strata scheme ‘saves up’ for projected expenses, like the eventual replacement of a HVAC system or new carpeting.
Special levies are charged when an expense crops up that isn’t covered by either of the above. In a well managed strata complex, special levies are few and far between. In others, the sinking fund is inadequate to cover foreseeable expenses.
“We always try and make sure that the sinking fund is sufficient to cover anything that might reasonably come up. That allows owners the chance to budget ahead and spread the cost. Sometimes it’s unavoidable, though.
“We had a complex where the forecast report told us we’d need to replace the lift motor in ten years, so we made sure the sinking fund would have enough in it to cover that cost. For some reason, it blew five years early. The part needed to be shipped from Switzerland, at a cost of $90,000. While we did have the money in the sinking fund, some of it was earmarked for other repairs down the track. We used a special levy to pay back the sinking fund over the next two years.”
Either way, Aaron thinks it’s worth investigating more.
“Read through the last two years’ worth of minutes,” Aaron advises. “You’re looking for reported problems or faults that might mean expensive repairs in the near future. A major water leak might raise red flags, because those can cost significant money to fix. Anything to do with flammable cladding is bad news, as it’s very expensive to rectify. You can ignore the minor things, like someone wanting to put security screens or air conditioning in. It’s the big ticket items that should flag your attention.”
Sinking fund balances
If there isn’t a special levy, how do you know if the sinking fund is sufficient? You don’t want to buy in, only to be hit with a special levy soon afterwards due to poor planning.
The best way to do that is to conduct a search of the books.
A book search can be done by appointment, and attracts a fee. It gives you access to more documents than the seller is required to disclose. “A seller needs to give you the S119 certificate,” explains Nicole, “and two years of minutes if it’s a Class A complex.” (A Class A complex, broadly, is a two-or-more storey complex, as compared to villas or townhouses.)
What the book search gives you access to is any additional minutes, including minutes from Executive Committee meetings, plus any reports that the complex has commissioned. “Look at the forecast report”, advises Nicole. “That will tell you what maintenance and repairs are predicted over the next few years and how much money should be budgeted for them. You can compare that against the balance of the sinking fund to see if it’s enough.”
As a strata title owner, you are bound by the default rules of your development. If you’re an investor, your tenant must be made aware of the default rules and agree to abide by them as well.
If you’ve told yourself that the home would be perfect if you could just enclose the balcony, see what modifications you’re allowed to make. If you want to pull up the carpet in the second bedroom to make a personal dance studio, check the rules around noise restrictions. The last thing you want is to find out that your new home doesn’t suit your lifestyle.
Find out more about moving into an apartment building here and why default rules are so important for starts to run smoothly.
Builder and developer details
Of course, strata documents aren’t the only way to find out about the scheme you’re buying into. Approached cleverly, the open home can give you a lot of information about the condition and layout of the building.
Aaron has some extra advice on how to do your due diligence.
“Find out who the builder and developer are for the scheme,” he says. “Any good agent should know the answer. Once you have those names, then you can do some research into the quality of the builder. Ask your selling agent what the last three or four projects they’ve done were, and check for any major issues.”
If the building is less than seven years old, there will be a structural warranty in place. That offers an added layer of protection for buyers of newer properties.
Aaron encourages any buyer who’s unsure to come and have a chat. “We can talk through anything that you’re not sure about in the documents, or explain reports. It’s always better to make sure you know about the complex before you sign the contract of sale."
Of course, if you’re thinking about buying an apartment – off plan is a great option. The building is brand new and has comes with a warranty—you can also get in early to decide your strata’s direction in terms of by laws.
You can find out more about our off plan properties here.
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Got an inquiry, question or feedback? Drop us a line and our Strata Management team will get back to you as soon as possible.
Current owners please contact your Strata Manager. Our after hours phone line is contactable from 7am-10pm on weekdays and 8am-10pm on weekends.