A little background Generally there are 2 choices in Australia when owning an investment property or a home.  The first is the traditional house and land where you own a parcel of land and the house and any other buildings on that land.  The other option is a strata unit, although there are a number of forms, more commonly relates to the ownership of a lot in a building which you call home.  If you have owned a strata unit before then you can skip the history part below but if you have never owned a strata unit before you should take a few minutes to read what follows as it will be better if you are clear about exactly what you are buying into and how to recognise certain traps and problems On the east coast of Australia there are approximately 2 million strata units and the numbers are growing rapidly.  These range from homes through to offices, shops and even commercial and manufacturing properties.  Commonly referred to as Strata Title, the majority of these buildings operate under state legislation similar in form across all the states and territories in Australia Where did strata come from? Strata legislation first appeared in Australia in NSW in the early 1960’s.  Other States soon followed and although there have been many changes to the legislation across Australia during the time the ethos still remains the same, that is, a unit owner has a tangible asset usually under the Torrens Title.  Torrens Title system is one where your title or ownership right, to the property is actually created by the very act of registration, or recording in a central register such as the Land Titles Office.  Torrens Title is an Australian invention by the Sir Robert Richard Torrens.  It is used throughout the world.  Torrens Title is Australia’s most famous legal export. What is strata? A strata scheme is a particular type of development which divides a parcel of land into “lots” and “common property”, and which specifies a system of management. In a residential strata scheme, housing is grouped, and for many people this provides a secure, community atmosphere. Combined with smaller areas, such as gardens to maintain and the use of common facilities, strata living can be an attractive option for many people.   Strata Title has many positives but along with this contrary to popular belief it carries risk and the potential of huge and unlimited liability. The Body Corporate (Qld) or Owners Corporation (NSW) We will just refer to it as a body corporate. The body corporate is the controlling body of a strata scheme. It is comprised of all of the owners of the lots in the scheme and comes into existence automatically on registration of the strata plan. Duties of the Body Corporate or Owners Corporation The Body Corporate (Qld), Owners corporation (NSW) has certain duties relating to the common property:  to administer, manage and control the common property reasonably and for the benefit of the owners and occupiers of the lots; and to establish and maintain (where appropriate) suitable lawns and gardens on the common property; and to maintain the service infrastructure in good and serviceable order and condition. What you own individually and what is common property All strata schemes contain areas of common property, although they are not always obvious. A common scenario is the inside of the unit or the lot is owned by the title owner.  Most outside areas, such as shared gardens, are common property. Shared stairwells and hallways are usually common property, however, even in the absence of these obvious shared areas, all the areas vertically above and below the boundaries of a lot are common property.  Basically you own the air space within your unit to the thickness of the paint on the walls and ceiling and the underside of the floor covering.   Common property is also relevant to when the plan was registered.  For instance in early strata (NSW) windows of units were not common property in later strata registrations external windows and doors became common property.  This means that if you are buying into an older strata plan, you should ensure the ruling on ownership of your external windows and doors.  In the event of maintenance to windows that you own the cost just to paint the windows could be huge if you are more that a few floors off the ground.  Replacement of windows through deterioration are also very expensive.  Many individuals who are involved in strata do not know that these differences in the legislation even exist if asked, most strata management staff and real estate agents will immediately say windows and doors are covered under common property.  If it is an early registered plan check it closely.  Just don’t take their word for it ensure it is written in the minutes or is given to you in writing. If it is a NSW property and the Strata Plan number is less than 5000, be cautious on this point.  Unit entitlements Unit entitlements determine a lot owner’s rights and responsibilities in the strata scheme, including such things as voting rights, the amount you are to contribute to levies, and your share in the common property. All lots have a general unit entitlement which is set out in the strata role. These entitlements are usually worked out when the plan is registered however they must be fair and equitable basis.   Some lots may also have a special unit entitlement. Special unit entitlements allow differing circumstances to be taken into account. For example, in a multi-storey development some lots may benefit more than others from lift facilities, and the special unit entitlement could take this into account. By-laws By-laws are rules and regulations which must be observed by all lot owners and occupiers. The by-laws govern the conduct and business of the body corporate and may cover: the administration, management and control of the common property the use and enjoyment of the lots and the common property exclusive use of common property. If you intend to take your pets with you to a unit, be sure that the by-laws allow your type and variety of pet before you buy.  Don't believe the seller get it in writing.  Some by-laws discriminate on weight and height of a pet.  This is designed to exclude larger breeds of dogs but allow smaller breeds. If you buy a Unit and expect that you can get away with your pet when it's not allowed there is plenty of examples where non-complying residents were forced to either move or find another home for their pet.   Are there any meetings I would have to attend? While it is not compulsory for any lot owner to attend owners corporation meetings, a strata scheme operates better if those concerned take an interest in its affairs. It is helpful if people are willing to make themselves available for election to the executive committee. There would usually be several meetings of the owners corporation each year, although the annual general meeting (when levies are set for the coming year and the executive committee is elected) is the only meeting required by law. The executive committee usually meets more often than the full owners corporation, as there are always a number of matters which need to be dealt with during the year. Prior to buying into a strata plan Even if you have not bought into a strata unit you should make your self familiar with the minutes and even attend committee meetings if you decide to buy into a particular building.  Whilst you are not able to vote or even comment it is, a public meeting and you can attend.  This is a time of discovery, some owners sell when they fear that there quite little block of units could be affected by proposed road works, Clear-ways, development as all of these things affect the environment where you live. Attending Meetings Attending meetings prior to purchase is rarely done by most buyers but a wealth of information can be learned about up coming levy increases by judging the need of finance required, disputes between owners and local council information relating to development nearby.  i.e. council may inform local residents of potential development such as a massive supermarket proposed next door. How will this impact on noise, parking and your environment? Being a cautious purchaser - Risks When you buy into a strata plan you are actually buying into something similar to an unlimited liability company.  This can mean, in extreme cases, where the owners corporation are unable to pay its debts, for any reason, owners will become responsible for these debts and these debts can be pursued through the courts to liquidate owners assets to pay outstanding money.  It is even more frightening to know that it is not only the unit that can be lost all assets such as other houses, owned by the unit owner can become part of court proceedings to settle outstanding matters.  If debts exceed you assets you can be made bankrupt.   This is the most extreme case of strata unit ownership.  Whilst it is the most extreme case there are some but few examples of this occurring and when compared to the estimated, 2 million units on the east coast of Australia, the odds are highly in your favour that this is unlikely to occur.  There are other less devastating risk but these are also costly and could result in you needing to find tens of thousands of dollars for repairs or significant building defects which may have been known to owners for years prior to your purchase, even if the previous owner knew of the problems and sold the unit without mentioning the problems there is no come back.   There are things you can do to reduce your risk particularly when a strata plan has an existing problem, much of the risk needs to be known before your purchase as if you fail to uncover an existing problem before you settle it may be too late for you to recover from this position. Where do the risks come from? insurance claims where the liability exceeds the insurance limits of liability building defects where the cost to repair the building is almost as much as the cost to replace it. uninsured or periods where the insurance was inadvertently allowed to lapse and a claim occurred during this period.  It could be as simple as a person who falls over on a slippery floor in the building and as a result of the injury becomes a quadriplegic.  If during this period there was no public liability insurance the building could be hit with a bill of easily $4M, particularly if it was known that the floor was slippery. the raising of special levies to undertake some type of maintenance or raising capital to finance any of the above.   Choosing your new home Attending open houses. Open houses are designed to give the best impression to prospective purchasers.  The timing and commonly the season are no accident when a seller and estate agent advertises an open house.  A smart seller will pick the best time of the year, the best day of the week and the best time of the day to sell their home.  The sun will be filling every corner of the unit, there will be plenty of on street parking and the unit block will be quiet and serene.  There will be smells such as fresh bread and coffee and a background of classical music just barely audible.   Whilst you have come to see the unit it is important to look beyond the well orchestrated presentation. This is a very important decision making time try to see beyond the immediate surroundings and the artificially created environment.  On your initial inspection pay attention to the unit not the things that are going to move with the seller.  Many unit owners have nice furniture and have well positioned layouts also many unit owners have designers who come in to set out the unit professionally.  The furniture is often rented and there is only a minimal of furniture in each room to give the perception of space, the time of the day and the time of the year is designed to showcase the unit with plenty of light filtered through the trees creating a beautiful outlook Things to consider when attending an open house Security We have put security as the number one thing to consider.  In our reports we see much discussion about owners needing to feel safe.  Security is has become a huge issue for strata (and the world).   Larger buildings built in the last 20 years generally have secure entry and apartment specific intercoms that allow the owner to identify the caller before gaining entry to the building.  Those buildings that don’t will be considering a retro installation.  The cost to install an intercom is expensive .  The expense is two fold the cost to run wiring to every unit is not only time consuming but can be extremely complex and there is the additional cost of to buy a handset for every unit.  In a multi-storey building of say 200 units the cost of just to buy quality handsets at $250 each would run to $50,000.  The total cost is likely to be in the vicinity of $80,000. Facilities Vrs Investors Often a selling point in a modern unit is the facilities.  Facilities commonly consisting a number of the following: a pool, spa, meeting room, gymnasium, BBQ and common outdoor area, concierge, elevators, beautifully maintained gardens, elegant and well appointed entry area and on-site security.  All these facilities and services contribute to the pleasure of living in such a building but they also add greatly to the cost of maintenance and ongoings and this is recovered through increased levies. Recently a 2 bedroom unit with extensive harbour views in McMahons Point, Sydney was for sale after being passed in at auction.  The 2 bedroom unit was for sale (at the time) $1.2M. The unit was tired and although it was reasonable as a rental proposition it really needed a full renovation. The unit was small the facilities were attractive although the views were simply stunning. Levies were $10,000 per year + Council rates were $1,350 P.A. and water rates of $750. P.A.   There were no planned special levies although this building has a history of raising them every second year often as much as $300,000. The Estate Agent said the property could rent for (at the time) $750 per week.  Question. How many weeks rent go towards the levies and rates and loan interest payments before you begin paying down your investment loan?    In this case the return is not in proportion with the outgoings.   The sun and light The sun can have a huge impact on your unit power heating and cooling cost.  Is the unit sunny in winter and will the sun be on the windows all day in summer turning your unit into an oven?  Try to calculate where the sun will be in a certain times in the day.  Make allowances for winter and summer.  In mid summer the sun rises slightly south of the east compass point and takes an almost vertical line across the sky finally setting slightly south of the western compass point.  In mid winter  the sun rises slightly north of the east compass point and reaches about a 45° angle from the ground finally setting slightly north of the western compass point.  Views A unit which has views of the harbour or the mountains commands a premium price.  Before being captivated by views check what potential long term view will remain after you consider trees growing taller or are you looking through  deciduous trees and when summer comes you will not be able to see past the trees, consider buildings being extended and new multi-storey developments.  There is little in the law to prevent other owners from planting trees that may block your views other than direct negotiation.   Bathrooms Bathrooms need to be in good condition.  Even if you intend to refurbish the bathroom it needs to be fully operational.  Examine the bathroom closely, it is the second most expensive room to refurbish, so unless it is your plan to spend a lot of money immediately the bathroom should be well presented have a useful layout and must be in good order.  Check for water pressure and hot water temperature.  Some units have older instantaneous water heaters which will continue to work even if one of the three elements are broken but the hot water will not get hot enough.  Look for evidence of leaking taps.  If you have to turn off the taps hard to make them stop dripping either a washer needs replacing or the tap could be simply worn out.  Look at the tiles, try to find any poor quality repairs or cracking.  Often stained or mildew affected silicone can be a sign of poor repairs or leaks.  Look in the toilet pan for cracks, stains and make sure the pan is securely fixed to the floor as many pans move and this can be dangerous and expensive to fix.  Check light, orientation and ventilation exhaust Kitchen Light, orientation and ventilation exhaust The kitchen is usually the most expensive room in the house.  The cost of appliances is one factor and the quality of the cupboards and bench tops are another which needs to be considered.  Check out the stove and test each hot plate, write down the brand name you may want to remember it later.  Check out the oven is it clean switch it “on” you are not over stepping your invitation you need to know now if the appliances are in working condition. Turn on each tap.  Check for water pressure Open each cupboard door and check for operation.  Check for the finish on the cupboard doors to ensure it is in good condition.  Check any timber cupboard doors for warping or just poorly fitted.   Check the dishwasher for evidence of operation.  Usually just before an open house the owner will run through the house tidying it up before guests arrive.  The dishwasher is likely to have been cycled, if it is warm it is a reasonably reliable indication that the dishwasher works if it is cold you need to investigate further. Laundry The laundry is the most boring room in the house, however just because it's boring don't neglect it.  If it is separate room in your unit ensure it is big enough to accommodate your washing machine and a dryer.  Yes welcome to the world of strata, only older style units have clotheslines these days and in the case of these older unit blocks the laundry and even the facilities are likely to be shared with others on your floor.  A more modern unit will have or provide for a front loading washing machine (which by the way takes forever to do a load), but in the world of changing priorities and water conservation its definitely more environmentally efficient but, then you sick a dryer on top!.  It is extremely unlikely that you will be able to hang washing on your balcony but some units allow it you use a clothes hoist and if the height of the clothes hoist is below the height of the balcony safety rail.  By-laws will help you understand what is acceptable when it comes to hanging out the washing. In the laundry check for a sink, a place to put dirty clothes, a place to store your washing powders and the like, a ventilation system to remove moisture from the laundry when the dryer is operating otherwise your dryer will raise the moisture content throughout the unit to a level which results in mould in wardrobes, on carpets and ceilings. Turn on the taps over the sink to check for operation.  Look for washing machine taps.  Older unit laundries located washing machine taps directly above a top loading washing machine, the position now required for a dryer.  In more modern units you may be surprised to find that there is no hot water machine tap.  This is becoming very common as the front loading washing machines are washing in cold water initially and during the cycle a heating element inside the washer warms the water as it washes.  If you decide to keep your old washer, the absence of a hot tap may result in the need to install a new hot water tap.  Lastly check for a drain in the floor as it is very likely that one day you, or the hot water service, which may be near by, will spill copious amounts of water on this floor and it would be nice if it went down a drain rather than spilling into your lounge room or finding its way into your neighbours place below.  If you have no laundry and no shared facilities, it is common to find a dryer and a front loading washing machine in a bathroom.  Local council rules should be checked about this practice as it is not always acceptable, but I don't exactly know what you should do if council doesn't like it!.  There are common cases where the front loading washing machine is located in the kitchen next to the dishwasher.  These washers have a built in dryer (the whole cycle takes a lifetime to do a load and not only are these expensive to operate washer dryers are far from kind to your clothes) The good news is, if a washer dryer is installed they are often left behind as installation or in the vendors case de-installation is usually expensive enough to come to the decision to leave it behind.  Check the contract to see what stays.  Hot water service and switchboard If you have a laundry, you are likely to find the hot water service located somewhere in the room.  Sometimes these are really not easy to see, often in cupboards.  Whilst you are looking around you may even find the electrical sub-board i.e. the fuse box, if either of these are not in the laundry check in the kitchen cupboards. If the hot water service is in the kitchen it is likely to be in a corner cupboard i.e. the dead space cupboard.  This may be a good place to put it initially but when it comes time to replace it access may be an issue.  Other rooms Light and orientation Built in wardrobes windows,  privacy and security Check window operation Window coverings curtains, blinds, venetians or plantation shutters Floor coverings carpets, vinyl, timber and tiles Walls, architraves, skirtings and woodwork painting Ceilings condition, flaking paint or evidence of water penetration or repair Car Parking Car parking is an area that is always overlooked.  Do you have an exclusive use car parking space.  Try to get your car into the space.  The vendor may own a small car which will be fine but some larger cars will need extra manoeuvring space. Check to see if you can open your doors.  How wide is the spot. If the car parking spaces either side parked their vehicles on the boarder of their space, or park a motor cycle beside their car will you be able to open your door to get in the car? Is the car spot covered? will your car be in the sun during summer.  Is the car parking space secure?   Will your car be safe? Can a person walk from the street and steal or damage your car, does the car space position put your car in a place where other drivers need manoeuvring room therefore opening the possibility of unintentional damage by other unit owners.  Can you walk under cover from the car space to your unit undercover, is the car space in a place where personal security is not at risk, is the car park lit at night or does it have security lights when somebody walks past On street parking Will you be able to get it reliably.  Does any of the proposed parking areas on the street become clear-ways or are they affected by special event restricted parking regulations. It the street parking time limited or metered, can you get a resident parking sticker, how much does it cost.  Do you need to pay the parking meters as a resident. Storage and Storage Areas Once you are a unit owner it becomes plain that storage is a huge problem.  Storage will ultimately be required for things such as a bicycle, the BBQ you are not allowed to store on your balcony, empty suitcases and you know the rest by name and difficulty.  If you are lucky enough to get a storage area with your unit ensure that it is exclusive use and ownership is either written into the deed or into the by-laws.  Beware of storage areas that are not water proof, are not enclosed or are simply not secure.  If the area becomes wet during rain you are well within your rights to have it fixed at cost to the strata plan.  Also be aware of service pipes ie water, gas, cabling or drainage piping which runs through your storage area.  You may have limits on what can be stored and may also have to give tradesmen keys which will reduce security of your valuables.     General  Ensure you are clear about what stays in the unit. It is usual for things such as light fittings, window coverings and curtains, air-conditioners, non-portable heaters but it is better to itemise all of these.  Take photos of the fittings which are to stay in the house as it is surprisingly common for light fittings, curtains to be replaced with cheaper products as the owners move out. Check for Television Arial points.  Access to cable TV is it installed in the building.  Is the telephone connected, if not ring Telstra to ensure the building has enough pairs of wires available to allow a new connection.  If there are no cables mobile are going to be the only option. Power points. Older units have fewer power points and it is very expensive and very disruptive to have new ones fitted.  If there are special finishes on walls such as wallpaper, textured finishes these may need to be totally redone. So you finally found the unit and are ready to make an offer. Rule number one No matter how much pressure is applied. DO NOT AGREE to sign away the cooling off period.  This is your valuable assessment time.  You can still get out of the contract (unless it is an auction) if you find something that makes your purchase unworthy.  You need to get busy and use this time to your best advantage.    During the cooling off period visit the unit a number of times at different times during the day and different week days.  Experience has shown, Friday and Saturday nights, Saturday morning and Wednesday or Thursday night and at least one visit during peak hour, will give you a good overview of the building in its real format. Rule number two You are likely to be told a story that is going create a feeling that many others are making offers on this property so you need to offer a higher price and do it urgently.  Don't believe everything you are told.  Don't fall for the estate agent trick "offers over $690,000".  It is a way of fixing the price.  Offer what you are prepared to pay and not cent more.  Commonly the "offers over" price results in a sale of considerably less that the offer figure. External noise and general comfort Pay attention to the flight path, traffic noise, train noise, local businesses, parking during business hours for your guests both visitor and on street parking, other residents noise such as crying children, loud TV’s older residents may have hearing loss, younger residents may just like to hear Metallica played through a 400 watt systems at 120 dB.  Check out where the garbage storage area is located as you don’t want it too close to your window.  It might not be a problem 3 floors below your sunny kitchen window in winter but when neighbours have friends over to throw a prawn on the BBQ, the resulting garbage in the hot summer sun may have an unpalatable effect on the aroma which wafts through your kitchen window.  Maintenance Is the building maintenance generally OK. You are unlikely to be a building inspector but look for cracks or fractures in the brick work or obvious signs of bulging in concrete supports. Ill fitting doors or water damage on the ceiling above. If you have a keen eye look for sub standard repairs which can often give you a hint about why someone may be leaving their unit.  Check out other important things such as night lighting, pool maintenance and up keep of gardens.  Other things to consider Be sure the building security suits your needs. Are there areas to transfer from your car to the building during rainy days so you don’t get wet. How long must you wait for the elevator (if there is one), and  will it be able to take your furniture Is there an ability to add another telephone line (some buildings are unable to have new lines installed as they have reached the cable servicing capacity) Is cable TV installed Is air conditioning installed if not, will you be allowed to install a small split system (some buildings do not allow it) Are you allowed to keep pets or does your budgie and moggy need to find another home.  Lastly think how you are going to get your furniture up the stairs and around some of the corners, you may have to re-think the grand piano as units are not renowned as being removalist friendly If all of this comes together and I hope it does, do two last things 1.         Get a strata records inspection report (even if you don’t get it from Purchasers Strata Inspections Pty Ltd), I encourage you to spend the money on this as the cost of the report will be small when compared to the cost of the unit and the potential risk exposure.  Remember you are actually buying into an unlimited liability company when buying a strata unit. 2.         Get a building report and give the building inspector the strata inspection report and make sure he reads it, as the strata report is the early waring system to uncover potential problems.  The strata inspection report will help the building inspector do a more thorough report as the inspector can get some hints on where he should direct his effort     Overall Strata Living is a great alternative to a home and a block of land with all the maintenance requirements and costs.  Really it is what suits the purchaser’s life style and bank balance.  Purchasers Strata Inspections Pty Ltd wishes you well in your purchase. Disclaimer This paper is written to give potential unit owners some background into strata unit ownership.  Before making a strata unit purchase you should seek independent advice on owning a unit.

Email psi@strata.com.au Phone 1300 363 774  Fax 1300 365 774