Buying a Unit? Why Strata Inspections are Important

When purchasing a strata unit:

• It is extremely important from a due diligence point of view to arrange for an independent strata books and records inspection of the Owners Corporation records to be carried out prior to entering into a Contract to purchase a strata unit (residential or commercial); and
• A strata books and records inspection provides essential information to support a decision to purchase a lot in a strata plan so that a buyer is armed with information as to the past history relating to the strata building and proposals for the future of the building (financial and otherwise).

This inspection will shed light on the following:

1.Whether there are sufficient funds in the Administration and Capital Works Funds given the size of the complex and the facilities. This is a judgment but obviously if there are lifts and other complex components, such as air conditioning in the building then the funds have to be sufficient to enable these facilities to operate.

2. Insurances to the relevant amount;

3. Any current special levies or proposed special levies;

4. Any upcoming work that is major that could result in special levies;

5. A history of special levies;

6. Any ongoing building problems or quotes that seem to have been given for major work and then potentially never actioned or to be actioned in the future;

7. A 10 year Capital Works Fund plan, which must be reviewed at least every 5 years. This plan together with other strata records would show:

1. details of the proposed works / maintenance time and anticipated costs for the proposed works;

2. source of the funding for the proposed works;

3. capital fund levies if any;

4. capital fund special levies (if any);

5. resources which may come from common property leases or licences;

6. other matters dealt with by the Owners Corporation from time to time;

7. other matters prescribed by legislation.

If the annual expenses combined with the large works detailed in the Capital Works Fund plan exceed the amount held by the Owners Corporation at the bank, special levies could be anticipated;

8. Any litigation, current or pending;

9. Any disharmony or obvious problems with owners in the building, who may make life difficult once you become an owner.

10. Consistent pattern of non-compliance with the requirements of being a strata scheme such as failure to update insurance valuations or implement window lock reviews.

11. Historical attitude towards renovations, pets and other topical issues that may be relevant to you.

• We have recently experienced a situation where an Owners Corporation had taken action against a vendor of a property for illegal works and commenced proceedings at the NSW Civil and Administrative Tribunal to have illegal works rectified or removed. This information was not disclosed in the Contract of Sale. We also have had knowledge of a situation where a purchaser entered into a Contract to purchase a strata unit, without carrying out a books and records inspection of the Owners Corporation and was surprised to learn that the Owners Corporation had agreed to submit to the local council a development application for reasonably extensive works to the common property and some units in the building, which could have resulted in significant costs to the owners.
• As at the date of this article strata books and records inspection costs on average $280 plus GST and if you wish our office to review that report, we charge $400 plus GST. A strata inspection would likely disclose early issues , that may have warned a buyer about a purchase with issues like the Opal Tower construction problems.

If you have any concerns regarding strata books and records’ inspections, then please do not hesitate to contact Julian Peters or our Property and Development team.

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