What To Look For In A Strata Report
Navigating the complexities of purchasing property in a strata scheme requires more than just a cursory glance at the location or the aesthetics of a property. It demands a deep dive into the strata report, a document that holds the keys to understanding the health, legal standing, and operational dynamics of the buildings’ strata scheme.
At Chamberlain Brown, we aim to make property buying simple and transparent. Here’s our guide to reviewing a strata report, ensuring you’re well-informed and empowered in your property acquisition journey.
Financial Health
Begin with assessing the financial stability of the strata scheme. Look at the current balance of both the sinking fund (used for capital works projects) and the administration fund (used for day-to-day activities).
All strata reports should have both current and recent historical financial statements which include both an income statement (a record of all the strata schemes revenue and expenses for a financial year) and it’s balance sheet (how many assets & liabilities the fund has at a given point in time).
Healthy financial statements are a good indicator of a well-managed property, ensuring that unexpected costs are less likely to surprise you down the line. Bear in mind, that the balances of both the sinking & administration funds should be reviewed in relation to the number of units in the strata scheme. A scheme with 100 units and a sinking fund balance of $100,000 is in a poorer financial position than a scheme with 4 units and $5,000.
Also, remember that you as a purchaser will be inheriting this balance. Buying into a scheme with a large balance is not just a risk-mitigating factor, but also a financial benefit in your favour.
Building Maintenance and Condition
While not all strata schemes will regularly audit the structural integrity of the building, most will perform bi-annual or 3-5 yearly reviews. Any review documents should be included in a strata report, so keep an eye out for recent building condition reports or pest inspection reports. Also, be mindful of recent maintenance items such as replacing carpets in common areas or improving external gardens & common areas.
Combing through the strata report concerning building condition reveals how proactive the strata management is in addressing wear and tear, which is crucial for the longevity of the property and your peace of mind.
Compliance and Legal Matters
Ensure the strata scheme complies with local laws and building codes. Check for any ongoing legal disputes or liabilities, ad-hoc work orders or complaints raised but not yet addressed by other owners. In newer buildings, be mindful of statutory warranty periods as some initial defects may not be a strata scheme liability, instead falling on the original builder to fix. This may make a perceived issue much smaller than it seems once you understand the moving parts.
Understanding these aspects can save you from future legal headaches and special levies that may influence your buying decision.
Meeting Minutes
Strata managers are required at minimum to hold an Annual General Meeting (AGM). At the very least, each strata report should include a record of all recent AGM meetings, which is where major issues are tabled and discussed, as well as procedural items such as capital expenditure plans, adoption of annual insurance policies & approval of the annual budget.
Many strata schemes also hold more frequent Strata Committee meetings where a single annual meeting is not sufficient. Minutes of both meeting types are a goldmine of information about past issues, resident concerns, and the dynamics within the building community. It’s a window into the property’s soul, revealing how conflicts are managed and decisions are made.
Insurance
All strata schemes are required to insure the buildings that they manage. This is essentially the equivalent of a Building Insurance policy for owners of freestanding homes. Instead of the individuals being responsible for ensuring their component of the larger building, strata managers will insure the entire building and seek funding from individual unit holders. The strata report will include the most recent insurance policy which will highlight the building insured value and inclusions/exclusions in the cover taken out.
Take time to verify that the building is adequately insured, including coverage for public liability, building replacement, and workers' compensation. Adequate insurance speaks volumes about the scheme's management and its preparedness for unforeseen events.
Pet Policies
If you’re considering moving into a strata scheme and have pets, it's critical to also check for any reference to pet policies inside the strata report. Sometimes there is no reference, which may warrant further inquiries with the Strata Committee before purchase.
Planned or Previous Major Works
Past major works are a great sign that the strata manager is proactive in dealing with major issues. Some completed major works are a benefit to you as a potential owner. For instance, if a building has recently had the roof replaced, this can indicate it is unlikely to need replacing again soon, and any capital works expenditure can be directed to improving other areas of the building in the foreseeable future.
Future works are certainly worth investigating further. If future works are planned but adequate funding still needs to be in the sinking fund, this could result in a future special levy that you as the new owner will be required to pay.
At Chamberlain Brown, we believe in empowering our clients with knowledge and insights that simplify the property acquisition process. A thorough understanding of the strata report is pivotal in making an informed decision. Remember, buying property is complex, but with the right guidance and information, we make it simple.