PURCHASERS STRATA INSPECTIONS

30 years in the business tells us something

Purchasers Strata Inspections Pty. Ltd. has conducted inspections for over 30 years.  We have carried out over 200,000 inspections.  In that time if there is anything that we have learned it is this, if you are buying a strata unit you should expect the unexpected. Levies do not remain the same. A huge number of units are sold as the property owners are aware of levy increases or there is to be a special levy others are sold because it is an unhappy place to live.

Here are some frequently asked questions click on the subject to go to that section. 

Levies and Special Levies

Building Code of Australia - Why does it affect your levies

Fire upgrades the hidden expense

What is a Strata and Community Title?

So what are strata titles

What is a Company title?

Why should you obtain an inspection of the books and records?

Why should you use Purchasers Strata Inspections?

Should I still obtain a building inspection report?

Once I own a Strata unit how can I avoid huge special levies?

About levies and special levies

When you own a unit in a strata plan it is usual to pay a levy about every three months.  This levy is collected to fund maintenance and repairs or upgrades to the building and other common property.  The amount of levy you pay is usually an amount in proportion to the size and position of your unit. The total of all levies collected is related to a forecast of how much it costs each year to maintain the building in good condition.  Levies usually escalate in proportion to the cost of trades and therefore quarterly levies are indexed to reflect inflation.  The aim is to collect enough money to fund works that are carried out during the course of the year plus a small reserve which should accrue each year to cover larger anticipated expenditure over the next 10 years, such as painting.  Everything works fine until unforseen or urgent repairs are required and the amount needed for repairs is not covered by the bank balance.  This results in a special levy.  Special levies are paid in addition to the normal quarterly levies. 

Special levies are always related to a major repair or can also be the result of unplanned maintenance which needs to be done urgently.  Sometimes special levies are raised to fund urgent building compliance works, for example fire upgrades which are required by the Building Code of Australia (BCA). Special levies do not necessarily have to be funded by demanding that all owners pay additional amounts.  There are other ways such as the Body Corporate or Owners Corporation are able to take out a special loan.  See "avoiding special levies".  In cases where this occurs the portion of the loan liability is owned by the unit not, the unit owner, so this loan liability transfers to any new unit owner.  In actual fact this means there is an ongoing liability associated with the unit.  This certainly would have an impact on the selling price of the unit and should be used as leverage in any price negotiations.

A PSI report will detail any known upcoming or current strata finance loans. A buyer
who is aware of these loan liabilities has an element of extra leverage to
negotiate on sale price.  Do you really need a strata inspection?

The Building Code of Australia

The BCA is quite unique legislation as it is designed to impact on new buildings to ensure fire safety systems are installed however older building do not escape this legislation.  This Code has been designed to impact on the buildings which were built before the Code was written. So buildings built in the 1970's will soon be affected by this legislation. In 10 years time buildings which were build in the 1960's will need to comply. This legislation is enforced by local government. The legislation gives local government inspectors power to force the executive committee to undertake fire safety upgrades even if the building executive committee is unwilling or unable to spend the money.  Ultimately this legislation will catch up with all strata and company titled buildings.

Fire upgrades the hidden expense

The BCA requires many things but it is common to see buildings spending money on unit entry doors, fire exits and common property access ways as the BCA requires these doors to be fire proof doors and metal door frames. This comes at a cost of at least $2000 per door installed. In addition, the same legislation requires that smoke detectors be fitted in common hallways and at least one in every unit.  In many cases the battery type of smoke alarm will be inadequate. This means that building which fall into certain categories need hard wired smoke detectors and these need to be connected to a monitoring station.  Monitoring stations used to be operated by the Fire Brigade for free however this is no longer the case and private contractors, usually accredited security contracting companies now are responsible to call the Fire Brigade if an alarm is activated. In addition to the above many of these buildings also need to have fire fighting hose reels.  One must be installed on each floor.  The hose reel must reach every part of the floor including inside units.  A hose reel reaches 30 metres.  If the distance from one hose reel to any point exceeds 30 metres more than one hose reel may need to be installed.

Some buildings in Sydney and the Gold Coast have received quotes for fire upgrade compliance work costing more than 4 million dollars.  You will pay your levy share of this amount if your building is affected.  As the BCA is a Federal Government initiative all Australian properties are or will be affected in the future. 

A PSI report will detail any known, upcoming or outstanding fire
safety upgrade works.

What is a Strata and Community Title

Strata titles were first introduced in Australia in 1961 with the passing by the New South Wales Parliament of the Conveyancing (Strata Titles) Act 1961. The other Australian states and territories quickly followed with similar legislation.

Strata titles are a form of condominium or apartment title. They are based on the Australian "Torrens" system of land titles. A feature of this system is a government guarantee of the accuracy of the public land title registry. No form of title guarantee insurance is required.

In New South Wales the current legislation is the Strata Schemes Management Act 1996.

In Queensland, strata titles are called "building unit titles" and they are regulated by the Body Corporate and Community Management Act 1997, with significant amendments in the reprint March 4, 2003 and amendments to the regulations effective 1st December 2003

In the Australian Capital Territory, strata units are managed by the "owners corporation" and are regulated by the Unit Titles Act 2001 with significant amendments in the reprint July 2003.

 To view any of these Acts click the link on the Strata Legislation link on the menu
bar or for easier reading click on the link Smart Buyer Choices.

So what are Strata Titles?

Strata titles are used to subdivide, by means of a strata plan, a building into lots (which correspond with apartments) and common property (such as lawns and gardens, elevators, hallways, etc.). The common property is vested in a special body corporate or owners corporation which is constituted automatically when the strata plan is registered. The owners of all the lots are members of this body corporate. The body corporate is responsible for maintenance of the common property and the works are funded by levies on its members. The members must contribute to a fund managed by the body corporate. Being an owner of a strata titled property is generally equated with being an owner of an "unlimited liability" company.

Generally the levies pay for most works however if for some reason the body corporate is faced with a huge and disproportionate or unexpected cost, the cost is divided between the owners. There is no limit to what an owner may be liable to pay in these circumstances

Community titles (also known as group titles in Queensland) are similar to strata titles, except they relate to horizontal rather than vertical subdivision. They therefore subdivide the land surface (rather than the floors of a building) into lots and common property. Again, there is a body corporate with membership and responsibilities similar to those of a strata titles body corporate. In New South Wales, these titles are regulated by the Community Land Development Act 1989 and the Community Land Management Act 1989.

Thinking about buying a unit?  Insist on getting a strata inspection

report to ensure you are not buying someone else's problems

What is a Company Title

There are very few Company Titles in Queensland but New South Wales still has quite a few successfully operating in some very good areas of Sydney.  Before strata titles came into existence in the early 1960’s “company title” was the only way to allow apartments to be separately owned.  There are still examples of these titles today and they are often found in the older parts of Sydney such as the eastern and inner northern suburbs. Although is it not commonly used, it is still possible for this title of ownership to be used in new developments or conversions of existing blocks of flats held under a single title.

The fundamental difference between strata and company title is that when you buy into a company title you never own any real estate, you actually own shares in the company who owns the real estate.  As a shareholder you have a right to occupy a defined area such as "Unit 21" and parking space "number 5".  Generally levies and funding operates similar to strata title in that each shareholder pays fees to maintain the building and grounds

Benefits

• As there is no title ownership a purchaser must be approved by the directors before buying into the company. This makes it possible to limit who owns shares or actually even decline the sale of shares without the need to give any reason.  It also opens the possibility of allowing only certain age groups to be owners. For example there is a building in Neutral Bay in Sydney where all owners are over 55 years of age. These benefits may be attractive to some however, in a changing world, anti-discrimination laws may have some bearing on these decisions.

•  Most of the residents are actually owners rather than investors.

•  It is likely to be easier to arrange for repairs and maintenance to be carried out.  In most cases you will be addressing another owner rather than a Strata Manager.

 The Downside

• Company titles are often seen to be clumsy, and apartments are generally priced at a discount in comparison to similar strata title units in the same area.

• When you decide to sell your apartment, directors can reduce your market opportunities by limiting the size of the market by restricting certain groups of potential buyers.

• The value of the shares may not increase at the same rate as strata titled buildings in the same area. If you spend a lot of money on your allocation i.e. your unit the capital value of your investment may not be reflected in the share price.  Share price is linked to the overall building value not your unit.

• It is essential that you become familiar with the company’s articles of association or their constitution, as it is possible that if you fail to comply with any article serious consequences, can occur including forfeiting your right to occupy the building.

• It must be remembered that the law does not look upon a company titles in the same way as it does for strata title unit owner. This may limit you options should trouble arise.

• Banks are less willing to finance Company Titles as there is no tangible asset involved in the lending.

• If the Company is attempting to Strata the Building it will be required to be brought up to fire standards even if the age of the building is still exempting this requirement

• When organising repairs and maintenance it is possible that the buying power of a strata manager may have more influence on downwards price pressure as service providers will be keen to stay in favour with a strata manger.  Service providers are aware that one strata manager can keep them in business year after year.  A company operated residential block may not have the same influence on price, start date, completion date and finish quality.

A Purchaser’s Position

In addition to carrying out the normal inspections and searches associated with buying a property, a purchaser considering a Company Title should arrange to have an inspection of the books and records of the company. The company is not required by law to make them available, but they generally are co-operative.  The following is important to consider but there are many other reasons than the ones listed here:

• Are there any restrictions on transfers;

• Do Company articles prescribe an interview for potential purchasers;

• Is renting is permitted;

• Are there any restrictions that will be placed on any tenant and tenancy itself?

• How the right to exclusive possession of the unit is described, e.g., by the company’s articles of association and/or by licence arrangements?

• Are the shareholder’s obligations to make contributions and whether this obligation is at the discretion of the directors;

• The current liabilities of the company;

• The adequacy and currency of the insurance effected by the company over the building;

• The provisions made for ongoing maintenance and repairs;

• Rights and obligations pertaining to common areas, parking space and storage space and the use of balconies, etc;

• Possible restrictions on auctions and sale/letting advertisements;

• The extent of the Directors’ powers

Before you buy it is important to have all of the information remembering that there is not as

much consumer protection in purchasing into a Company title.  Get the best people

in the business to do your inspection. Get a PSI report. 

Why should I obtain a Strata Title Records Inspection?

When a person buys an apartment, or lot in a community titles scheme, they automatically become a member of the owners corporation or body corporate.  As a member the new owner also assumes a share of the assets and unfortunately any liabilities that may exist. It follows that the asset and liability position of the body corporate is a fundamental matter of concern to a purchaser. This is one reason why an inspection of the books and records of the body corporate is carried out. This is the type of inspection carried out by Purchasers Strata Inspections.

Here are some other reasons why you should obtain a Purchasers Strata Inspections report:

• to be certain that there are no insurance claims where the limits of liability have been exceeded or the insurer left the market i.e. HIH

• to obtain an insight into the maintenance and standard of repair of the building.

• to see if there are serious dispute problems that may impact on the purchaser's future lifestyle.

• to ensure statutory duties are being complied with and proper records are being kept.

• to determine whether there are likely to be large special levies which the person selling the unit may be trying to avoid.

• to ensure that contractual warranties are not being breached by the person selling the property

• whether the state of harmony between unit owners is relaxed.  You would not want to buy into a block of units where disputes between owners detracted from the over all benefits of living in a community environment

• to be sure that you are allowed to have pets on site.  This is something that is often overlooked or, you may have been told incorrect information in order to close the sale and

• to determine whether the strata plan has made application for or has an existing loan.  If the strata plan has a loan or is intending to take a loan, the new owner will inherit the balance of loan repayments paid as increased contributions (levies) to cover the loan repayments when actually, you are paying for previous shortfalls in levy contributions by the strata plan.  It follows that you are paying increased levies, subsidising the previous owners past levy shortfalls.  This increased contribution should not be dismissed and price negotiation should be considered.      

Inspections are best undertaken before a person commits to purchase. Where the purchase contract contains warranties in favour of the purchaser (as many do), then the inspection can safely be carried out after the contract has been signed but before "settlement" takes place.

A few dollars spent on an inspection can save tens of thousands of dollars

after the purchase of the property has been settled.

Why use our company

In 1976 Purchasers Strata Inspections was registered in NSW, the first strata inspection company in Australia.  We set the standard and we continue to do this today.  Purchasers Strata Inspections opened operations in Queensland in 1994.  We have carried out more inspections in Australia that all of our competitors put together.  We have specially designed application software that allows our inspectors to access the history of the building and compare it to the strata managers file.  No one else has software which alerts their record inspectors to problems and unsolved issues so we don't miss important matters. 

We are often asked to undertake certain inspections by our competitors as they find some inspections too hard or too time consuming.  Sometimes competitors buy the last report done on a property from Purchasers Strata Inspections.  They update the financial figures and sell the report to you at a premium price with their name on it.  If you order a report from Purchasers Strata Inspections we guarantee to have inspected the books and records the day before you receive our report.

We carry professional indemnity insurance for your peace of mind,  many other companies even some of the so called professional ones don't bother with insurance.  So if there is a problem you don't get help you get a company running for cover.

We work from an office and this office has full time staff.  You won't get a recorded message or be forced to deal with a call centre or a junior who knows nothing about the strata inspection business.  Our inspectors go through vigorous training programmes before they become inspectors and they are kept up to date on legislative changes and trends.  We draw our inspectors from professionals who often have qualifications in law, finance or property.

Our office is open and manned every business day between 8.00 a.m. and 5.00 p.m. but it is usual to find someone answering a phone outside of these hours.  Added to this we are advised and supported by the most prominent strata expert in the country, (Gary Bugden OAM) who is often called the father of strata.

Our reports are the most comprehensive available and we cover more detail in our reports that any other provider in the industry and we still charge around the same cost overall.  If you do get a quote from a competitor and are given a fixed price for the report, this will equate to a fixed amount of time on site conducting the inspection.  Do not be fooled by the price, simple strata searches take about 1 hour to 2 hours to carry out at the Strata Managers office and about an hour in an office.  Larger buildings can take much longer as they have many more records that need to be searched.

Be aware...the quality and accuracy of your report is the most important issue, there is little
value in saving a few dollars if your report misses something on the file that warns you
of high future expenditure on the unit that you are about to buy! 

Should I still obtain a Building Inspection Report

Purchasers Strata Inspections is a specialist strata title inspection company.  We do not carry out other inspections we leave this to the specialists in that field.  Whilst we do not do these reports believe that it is always good practice to have a pest inspection and a building inspection carried out before you buy into a Strata building.  Even though you will not be responsible to pay for building repairs or termite damage, the fact is do you really want to be associated with a building that has these problems?  Also remember that if the building does have a problem ultimately you will pay your share to fix the problem in levies or special levies.

Over a period of time Purchasers Strata Inspections have worked closely with one service provider, Precision Inspections. Precision Inspections are able to provide high quality building inspections.  Click here to go to the Precision Inspections link for pricing, order a report on line or click to find out more about Precision Inspections

Would you buy a used car without an NRMA inspection?. Then why would you buy
a strata unit for $300,000 plus and not get a PSI report  

Avoiding the pain of a huge special levy

Many potential property investors and home buyers avoid strata units simply because they don't want to be caught up in the possibility of having to pay an unforseen special levy.  History has shown that the potential for special levies is real and sometimes these levies are so urgent owners are not given too much time to raise the capital.  This forces many owners to find the money by a bank loan or even worse credit card payments at huge interest rates.

The good news is that this is the way it used to be done.  The personal effect of a special levy can be removed as it is now possible for the Body Corporate or an Owners Corporation to raise capital through a special strata finance company and make repayments through the normal quarterly levies.  One such company Lannock Strata Finance has been providing assistance to the Body Corporate or the Owners Corporation to fund improvements and even major maintenance. This takes the pressure off the individual owner and improvements or maintenance can now be done sooner. Click here to visit Lannock