What To Look For In Your Pre-purchase Strata Search

strata searchThere’s that special moment when you sign a contract when you’re not sure whether you’re suffused with excitement or sheer terror. What have I just done?

It’s normal. It even has a name; Buyer’s Remorse.

As a purchaser what you’re really looking for in these moments is peace of mind that you’re not buying into a complete nightmare that’s going to make you miserable and / or poor.

It’d be nice if you could actually find that out but, alas, there are no guarantees in property. Which is why we go ahead and do a number of searches and reports as part of the conveyancing process, things like building inspections and flood searches.

Strata searches are vital

A strata search should be part of the suite of reports you get when buying any lot that is part of a body corporate.

When you buy a house you’re taking on all the various issues with that house.

When you buy a unit you’re taking on all the various issues to do with that unit and all the various issues to do with the common property.

Simply put, you’re going to be jointly responsible for whatever that body corporate has got going on, including obnoxious behaviours, financial problems, building issues and any legal disputes.

It’s definitely a good idea to find out if any of those things are already happening while you still have the option to walk away.

Say you did do your homework and you’ve made your contract conditional upon a satisfactory search of the body corporates records, what now? What does a strong, healthy body corporate look like?

Key performance indicators of body corporate health

There are five main areas where body corporates go pear shaped:

  • Finances
  • Building defects
  • Legislative non-compliance
  • Poor management
  • Disputes

These are ‘symptom’ areas if you like because a problem in one area will most definitely cause problems in another. For instance there may be substantial building defects which lead to disputes and financial issues. Or poor management which lead to defect fines for legislative non-compliance or even dangerous situations.

What are you actually looking for in each area?

Finances

Body corporates are ‘entities’ just like people or a company or trust, which means they can enter into credit contracts and run up debt.

Which is a problem because body corporates don’t trade like companies or trusts, and they don’t have jobs like people. Their only source of income is the lot owners in the form of levies.

You probably want to avoid stepping into a situation where there’s a lot of lingering debt, either in terms of cash flow shortages or creditors. These are indicators that more funds are going to be sought sooner or later, probably through special levies.

The strongest financial positions come with healthy sinking fund balances matched with healthy cash balances and acceptable levels of levy arrears.

4 KPI’s To Tell If Your Body Corporate Is Financially Sound

Building Defects

All buildings have defects, even, what am I saying, especially brand new buildings.

In most cases defects are not actually much of an issue. What matters more is how those defects are being dealt with.

New body corporates need to be dealing with defects with the builder and, hopefully, resolving them. Older body corporates need to be following regular maintenance schedules for optimum long term performance.

If your lot develops a problem it will be better by far to be part of a body corporate with a history of quickly and efficiently dealing with problems.

Of course there’s always the situation where there are defects that are major, expensive and not done yet, which, hey, at least you know now and can make a choice about whether or not to get involved.

Body Corporates and Building Defects

Legislative Non-compliance

There are a large number of acts that force compliance issues on body corporates. The most significant are, in my opinion of course:

  • Pool safety, because the alternative would just be heart breaking;
  • Fire safety, because no one wants to die a fiery death;
  • Workplace Health & Safety, because no one likes to be sued, or worse, have an accident;
  • Insurance valuation, because if we do have a fire, or whatever, I want to be adequately reimbursed; and
  • Sinking Fund Forecast, because upgrades should not fall to ‘now’ owners only; everyone needs to contribute over time.

Not every act will apply to all body corporates, but, where they do, the body corporate records should show that legislation is being complied with.

Poor Management

Poorly managed body corporates eventually run into issues though sadly, the hallmark of a poor management is that it tends to go on for a long time before someone acts.

That’s because poor management is often insidious and not easily dealt with. No one likes to fire someone, particularly if it means taking responsibility themselves.

Management issues arise with committees, or lack there-of, and contractors such as the body corporate manager or the building manager. Majority lot owners can create difficulties

The hallmarks of good management are actually fiscal strength, good levels of cleanliness, good maintenance and repair and legislative compliance. Excellent body corporate records and a swift resolution of disputes also help.

Disputes

Unless they’re being sensible, kind and reasonable people can be, well, just not that great.

Which can be a real problem because body corporates are all about people. They’re homes, and though you may not be planning to live there, you are probably planning on having someone live there. Things that would upset you will upset tenants too.

Disputes are either internal, lot owners and / or committees fighting between themselves, or external, the committee fighting with external bodies, such as builders, contractors or neighbours.

An absence of disputes is the Holy Grail in body corporates. Failing that a record of strong leadership and a fair and active committee will mitigate most problems.

If the records show long-term, expensive and ongoing legal battles, well, clearly a rethink is needed.

Those are the five core areas where body corporates should demonstrate strength.

Less is actually more

A lot of body corporates are well managed, well maintained, financially secure, safe and happy places to live. And a search that shows not much is probably saying just that. Which means your strata search may not actually show anything out of the ordinary.

I know it sounds strange, particularly if you’ve just shelled out $250 for the search, but the less there is to report on the scheme the better it actually is.

Up to a point.

The other end of the scale is that sometimes there’s nothing to report because there’s no records.

Documents go missing for a number of reasons, from just being lost to being damaged to being purposely redacted.

That’s a worry, a red flag if you like, something that stands out as not quite right.

They are only indicators

The thing with indicators of possible problems, or even problems themselves, are that they’re not actually a reason not to buy. They’re not anything really except observations.

Everyone’s circumstances and priorities are different and what might be of great concern to me may be meaningless to you, or vice versa.

My intention here is to give you an overview of what I look for as a professional strata searcher. Even should I do a strata search for you (which I’m happy to do by the way) the final decision of what that all means for you, will always be yours.

photo credit: SalFalko 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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