15 Signs of a Healthy Body Corporate

15 signs of a healthy body corporateA healthy body corporate is what every purchaser wants when they buy a unit. A pre purchase strata report is all about investigating the scheme to find that out.

How exactly do we do that?

I did a search where the client specifically requested that I look for evidence on the effectiveness of the Committee. Luckily for me the body corporate manager was moving on and as part of his final meeting he took the time to compliment the Committee on their high level of professionalism.

Perfect. Just what my client was looking for.

Unfortunately statements like that are few and far between. Particularly if it turns out the Committee or body corporate management are rubbish.

Negative aspects don’t tend to make it into the minutes. So I, and by extension buyers, are left having to extrapolate information and ideas from what does get reported.

And of course that’s what this website is all about, how to analyse what’s reported to determine if your potential body corporate has issues that are likely to impact.

Just as important as knowing how to spot potential issues is knowing how to spot the things that are actually working out well. Here is a list of 15 signs of a healthy body corporate.

1. A demonstrated history of addressing maintenance issues

For example, I would expect to see several instances of this following entry in the minutes (of course relevant to the subject scheme’s issues):

Tabled letter from Lot 5 regarding water ingress through windows. Noted the window shares a boundary with common property. Resolved the Building Manager attempt repair.

On the surface it appears to be a simple line item in a minute, but it tells me that:

  • Correspondence received from lot owners is passed on to the Committee
  • The Committee read and discuss matters raised by lot owners
  • Effort is made to determine if the matter really is a body corporate issue
  • The Committee take action to rectify matters once responsibility is determined
  • All actions taken are reported to lot owners via appropriate channels ie minutes

This simple entry bodes well for the likelihood of having future issues dealt with.

It’s also giving me clues to the effectiveness of the Committee (pretty effective), the professionalism of the body corporate manager (also good) and the seriousness with which they take lot owner complaints (very seriously), all good things.

2. No / low new building defects

All new buildings have defects, it’s the nature of the building process that there are too many variables for things to be both completed timely and 100% accurately.

Dealing with building defects under warranty is a long winded, frustrating process. A new(ish) building with few or already rectified defects is best.

However if there are still outstanding issues, it’s the response to the defects which is most important.

Once defects are identified they should be reported to the builder, and this is the crucial part, the builder should immediately rectify them.

That doesn’t mean they accept responsibility instantly for everything nor does it mean that everything needs to be fixed first time or else.

But the builder does need to be openly and responsively engaged with the body corporate to find a solution.

3. A healthy Sinking Fund balance

New buildings have defects and older buildings become run down and require capital works.

Again the need is not as important as the response to it, and in this case it’s the balance of the Sinking Fund that’s the key performance indicator. Buildings do eventually need capital works and the body corporate should be collecting to meet those needs.

How much is enough? The Sinking Fund Forecast is an estimate of how much to collect and when it will be spent. A healthy Sinking Fund balance is in line, roughly, with the forecast and is enough to cover the expected upcoming works.

4. Any Administrative Fund deficits are recovered quickly

Given the way ongoing expenses are collected and disbursed it’s common for Administrative Funds to run into deficit.

If the deficit is recovered promptly there is not issue. Budgets should reflect that deficits are being recovered.

When you buy in a body corporate and there’s a deficit in the administrative fund you’re essentially buying a debt. If there are other problems it can be the final straw.

A healthy body corporate will recover deficits immediately and if the cause is likely to be ongoing, raise the Administrative Fund levy so it doesn’t happen again.

5. Levies are issued consistently

Habits are incredibly powerful, and for a body corporate you want your lot owners to develop a habit of paying levies every period. That requires levies notices are issued consistently, for the amounts quoted in the AGM minutes, and within the periods declared.

Late levy issues upset people’s routines and have a negative impact on collections. Missed levy issues are a red flag because somehow those missing funds must be recovered, usually by double levies for the next period.

Consistent levy issues increase financial solvency and indicates professionalism from the body corporate management or secretary.

6. No / low levies in arrears

Outstanding levies are a nuisance for both the body corporate and lot owners combined. They compromise cash flow, creates the need for collection tasks with all their associated costs (which then also require collection), and promote disharmony.

Less is best.

7. Clockwork AGM’s 

A smoothly running body corporate will hold their AGM’s at exactly the same time each year, within a few days, year in year out, like clockwork.

One late AGM is only a blip on the radar but a consistent record of delays is an indication of management issues.

A missed AGM is a serious concern.

8. A Committee is elected each year

Apathy is a real problem than many schemes battle with every year which manifests itself as few, if any votes for general meetings and no nominations for Committee.

Without a Committee, even one person making decisions, the scheme is vulnerable to delays and conflicts. Essentially the scheme leaderless and in limbo.

The best outcome is a full Committee of seven members, a cross section of the lot owners who are actively committed and involved in maintaining their and your investment.

Contested elections are good sign too. It indicates that many lot owners are involved, and if they don’t get elected, they’re essentially acting as the ‘opposition’ or oversight.

9. Regular Committee meetings

Body corporates are homes and businesses and they are buildings that are well utilised.

There will be business to attend to, even if it’s only routine stuff like renewing the insurance, approving pets or making repairs. These issues need to be dealt with and the forum for doing that is the Committee meeting.

Many issues are very complex and require time and effort to understand, particularly for those of us who’re not builders.

Regular meetings allow the Committee to get clear on the issues and make informed decisions. It also allows space to make plans and create an agenda for the building moving into the future.

Sometimes Committee’s take care of business via “flying minute” which is simply a record of decisions made without meeting. It’s adequate for reacting to issues and should be the minimum of engagement.

Decisions made without record are maddening and it misses the opportunity to build value through a documented history.

10. Body corporate records are complete

A schemes records are as much a part of the value of the property as the pool or gardens. A clearly documented history makes a building more attractive to buyers. It also reassures other stakeholders like Mortgagees and Insurers and it’s a powerful tool when disputes arise.

I look for neat, tidy records that contain some sort of order, but that is not a prerequisite. They can be stuffed into a dusty shoebox for all I care so long as they contain all the documents that are required.

Complete records speak to the professionalism of management, compliance with legislation and commitment to the processes that protect the rights of lot owners.

11. The building is fully insured

Protecting the common property and by extension everyone’s investment is vital. It’s as equally important to ensure the building(s) are insured for enough.

There’s a prescribed method for doing that in body corporates and that’s by obtaining regular updates (every five years) of an Insurance Valuation prepared by a Quantity Surveyor.

The scheme should then be insured to at least that value.

That’s pretty cut and dried. I expect to see a valuation and I expect to see the building insured to at least that value, and if it’s not, I would want to know why not.

12. Legislative compliance reports are in place

There a number of pieces of legislation that affect body corporates and compliance is mandatory. For instance, buildings with a pool must have a pool safety certificate, and buildings built prior to 2005 must have an asbestos survey, and possibly a register.

Compliance with legislative requirements reduces lot owner’s exposure to risk.

Plus you avoid the natural issue the legislation is aiming to eradicate, like toddlers drowning in your pool, which is a very good thing.

13. No / low contravention notices

On the surface a group of strangers moving in together seems like a really bad idea. It’s only the commitment to observing bylaws that makes it all work.

One person who refuses to play by the rules can have a devastating effect on the harmony of the whole scheme, although of course bylaw breaches in most circumstances are more annoying than anything else.

To avoid conflict bylaws should be applied to every resident and lot owner consistently. Bylaws do need to be policed and that needs to be done in an even handed, respectful manner that promotes high levels of compliance.

In the records this is demonstrated by few, if any, contravention notices issues. Notices are only issued if a breach has happened and verbal requests to rectify are ignored.

14. Low levels of complaints about maintenance issues

You may walk around a body corporate and think, wow, so neat and tidy, but if you live there you find things that don’t work or get damaged. Those things should be reported to the Committee, who then rectify the issues.

Lots of complaints means lots of problems, or one large, serious one. Less is best here as well, although ironically no complaints could translate to no one really cares.

A small amount of complaints, which are then reported and addressed (though not necessarily rectified) in the minutes is a good sign. It indicates lot owners are engaged with keeping the scheme in good order and the Committee is responsive.

15. No / low Adjudicators Orders 

No Adjudicators Orders doesn’t actually mean there are no conflicts. In most instances the Commissioner’s Office will attempt conciliation between the parties as a first step.

This is a good thing. Adjudicators Orders are public information whilst conciliation agreements remain private. So if an Adjudicators search turns up few if any Orders then it indicates that both Committee and lot owners are reasonable and committed to resolution.

In a very large building it would be unusual to see no Adjudicators Orders since sheer numbers will result in some conflict.

Conclusion

There are a lot of strata schemes out there that will tick every one of those criteria.

Of course there are a lot that won’t as well. That’s doesn’t necessarily mean avoid them at all costs, quite the contrary. Some things are more important than others, depending on the type of scheme, your personal goals and the other benefits the scheme offers.

My intention here, as with every article and every report, is to raise awareness so you can make considered decisions with a clear understanding of what it’s likely to mean.

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!

Download Now

Comments

  1. Thanks. I’m trying to make the world of body corporates as clear and simple as possible, its nice to know I’m succeeding!

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