15 “Red Flags” In A Strata Search

strata searchI spend my days reading reports and trying to decipher what they mean, usually so I can report that information to others in a strata search.

As a Strata Searcher you learn pretty early on that it’s best to be thorough in reporting. If you don’t you’ll end up going back to answer questions, or worse, chasing impossibly busy managers who seldom return calls.

I’ve learnt to identify “red flags” in body corporate records. To me a red flag is something that tickles my sense that something isn’t quite right. It lets me know to investigate further and report more fully.

It’s also an indicator that there may be flow on effects from this action.

Much of what I write about in this website is about identifying these issues and explaining what those flow on effects might be.

It’s important to note that a red flag isn’t necessarily a reason not to buy, or even a bargaining point for the purchaser. In most cases it’s a simple point to check off in the strata search.

My Red Flags

1.  A substantial increase in levies – if the levies are increasing substantially something has happened or is about to happen that requires more funds. What?

2.  A deficit in body corporate funds – deficits are reasonably rare and can be simply timing issues or symptoms of major financial problems. What’s causing the deficit?

3.  Substantial levies in arrears – when enough lot owners don’t pay their levies the onus for keeping the body corporate liquid falls on those who do pay. What’s the situation?

4.  The body corporate has Creditors – levies are usually issued and collected in advance of expenditure being accrued. Creditors are rare. Why are they not being paid?

5.  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?

6.  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?

7.  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?

8.  Issue of a Continuing Contravention Notice – the Committee has a problem with something that someone is doing within the scheme. Who and what?

9.  Appointing a solicitor to act on behalf of the body corporate – the body corporate is dealing with a legal matter that requires advice

10. 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. What is the dispute?

11. The body corporate manager has changed – changes in management result from dissatisfaction with previous management. Why?

12. A Committee member has been dismissed – dismissal of a committee member, or an entire committee, is very rare. What are the issues and will removing the member / committee resolve them?

13. The scheme is not insured for the valuation amount – body corporates are required to have a current insurance valuation and must insure for at least that much. If they’re not, why not?

14. An expired or no Sinking Fund Forecast (SFF) – body corporates are required to have a SFF which estimates works and costs at least 10 years into the future. If the report is not there or is expired, why?

15. A late AGM – body corporates have time frames for AGM’s and a delay is meant to be approved by Commissioner. Most hold ups happen because quotes are being obtained for works to be voted on. What works, and why?

All body corporates from the very small to the very large follow procedures set down by the legislation. It’s comforting in its way because it makes differences easier to spot.

And that’s what a strata search is all about. Finding the differences and then finding out why they’re happening. My goal is always to give purchasers as much information as possible to answer the question “Will this body corporate be a good buy?”

photo credit: Merlin1487 via photopin cc

THE BASICS OF BODY CORPORATES

A little knowledge can go a long way


I see so many stressful and frustrating issues in body corporate records that result from simple misunderstandings it hurts my head. If I could do one thing to help it would be to teach everyone the basic rules, so they can avoid all these dramas.


With that in mind I've put together a short eBook that sets out the basics everyone owning in a body corporate really should know. It won't make those big issues go away, but it will give you a firm grounding from which to communicate.


It's completely free, so please, download it now!

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Trackbacks

  1. […] deficit in owners funds is a “red flag” in body corporate records. It’s an indication of a blown out or mismanaged budget. […]

  2. […] deficit in the body corporate funds is a definite red flag for me as often it’s an indicator of a more serious issue financial […]

  3. […] That comes with certain risks. I’ve written about that here and here. […]

  4. […] There are lots of these red flags, things that might indicate something more peculiar and wide ranging going on. I’ve previously written about 15 of them here. […]

  5. […] and fund deficits are red flags, indicators of poor financial management. They don’t always spell doom and gloom but in most […]

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