It is imperative for any buyer who is looking to purchase a strata property to purchase a strata report detailing the actual and expected financial liabilities of the Body Corporate that the purchaser will be joining. A strata report should also outline any non-compliance with regulations, disharmonies among the unitholders, litigation against builders or tradespersons as well as any peculiar aspects of the apartments by-laws.
The information that strata reporters have access to is essentially all of the records that the body corporate is legally required to keep. This may include minutes of meetings of the body corporate, email correspondence among the members concerning major issues, insurance certificates and other compliance certificates. Good strata reporters will also attempt to engage in a verbal discussion with the strata managers to get ‘a feel’ for any other issues not obvious in that documentation.
Strata reports usually cost $200 – $300 and are arranged for by either your solicitor, the real estate agent or can be purchased online through a number of providers. The usually take at least 48 hours to turn around.
These reports vary in detail ranging between around 40 pages to 300 pages. They are sometimes written in confusing, highly qualified and non-committed language and purchasers often complain they are hard to digest.
Here are seven things you should look out for:
1. Who commissioned the Strata Report?
It is important to note who commissioned the report. A report commissioned by the vendor (or the agent) may gloss over more serious issues or not appropriately highlight financial problems evident in the records they have reviewed. Ideally the strata report would be obtained independently via your solicitor or from an independent provider directly from the internet.
2. Who is the Strata Reporter?
Actually, this doesn’t really matter as strata reporters do not require any professional qualifications and the bland nature of the work makes it difficult to ‘stand out from the crowd’. What really matters is that the Strata Reporter holds Professional Indemnity Insurance, ideally with a policy limit of at least $500,000. That way, if there is something missed out of their report your solicitor will be able to sue the reporter and the insurer will be able to meet the claim. Dott & Crossitt Solicitors have successfully sued strata reports in the past.
3. Can you (legally) rely on the Strata Report?
Sometimes vendor or real-estate agents will provide ‘free’ strata reports. These may sound appealing but they usually contain an important qualification that they cannot be ‘relied upon’ by a purchaser unless the purchaser has paid the strata reporter a fee. This makes some sense, for example in an auction situation, where you may only have to pay if you win the auction – but don’t forget to pay the fee if you do!
4. What does the Strata Report say about Special Levies?
There needs to be a clear and unambiguous statement in the strata report as to whether any special levies have been struck or are expected to be struck. There should also be a comment in the report as to whether or not, historically, the building has tended to regularly strike special levies. If you do not see a clear statement to this effect, you should insist that the reporter provide one. (In case the strata reporter doesn’t make the connection, any suggestion of planned capital works that have not been budgeted for usually raise the possibility of a special levy)
5. Is there a ‘Long Term Capital Works Fund Forecast’?
Previously known as a ‘sinking fund analysis’ this is perhaps the most important indicator of the Body Corporate’s abilities to meet its liabilities and whether contributions from unitholders will need to increase. It is a forecast taking into account the nature of the building and expected repairs and improvements required and proposing a schedule of capital works fund contributions required to meet those expenses. While it is required by law for the Body Corporate to produce this report, it is a good thing if the management has gone to the expense of commissioning a qualified actuarial accountant to prepare this study rather than doing it themselves.
6. Is the Body Corporate in compliance with regulations?
The strata report should indicate whether the Body Corporate is compliant with requirements imposed by law, including to hold building insurance for the full value of the property, public liability insurance to a minimum of $10,000,000 as well as holding compliance certificates for fire safety regulations and regulations around child window safety devices. With the last two things, in particular, we have seen large special levies being imposed in recent times to rectify non-compliance in these areas.
7. Is there disharmony within the Body Corporate
Disharmony among the body corporate is costly. A disgruntled unitholder often does not pay his strata levies which leaves the building underfunded. The other unitholders have to pay the cost of a debt collector or solicitor to recover the arrears. Disharmony within the Body Corporate can also mean the Body Corporate’s decision-making function becomes stagnate and necessary works are not completed. Whether the strata manager has changed frequently over the years may also indicate a dysfunctional Body Corporate.