When buying a property in a strata scheme in New South Wales, it’s incredibly important to undertake due diligence on the strata scheme. While the contract for the sale of land is a document that contains information about the title to the property and the terms of the sale, it typically will not contain information about what is going on in the day to day running of the building. This is why obtaining and reviewing a strata report is an essential component of strata conveyancing.
What is a strata report?
A strata report, also known as a strata inspection report, is a report prepared by an strata inspector following their inspection of the records of a particular strata scheme. It will typically contain all types of information about the scheme, including bank balances, how much the strata levies are, how the owners corporation is spending its money, minutes of any meetings of the owners corporation or the strata committee, and many other important documents.
What happens in a strata inspection?
During a strata inspection, the strata inspector will typically obtain consent from the owner of the property and will contact the managing agent for the strata scheme. They will then make arrangements to view the records of the strata scheme, which may be physical records held on site, or which may be digital records.
What type of records does a strata scheme keep?
A strata scheme will usually have all types of records relating to the running of the scheme. This will include things such email correspondence, minutes from meetings, any contracts or agreements that the scheme has entered into, copies of financial statements, records of renovations or approvals, copies of the by-laws, and any other documents relating to the scheme.
How to get a strata report
There are many strata inspection companies which offer strata inspection services and which can prepare a report for a prospective purchaser of strata property.
There is no set format for a strata report, and so the quality of the report will often come down to the skill and experience of the inspector.
The inspector will have a limited time period during which they will need to review and collate any documents held by the strata management which might be relevant to their client.
How long does it take to get a strata report?
There are several factors that might influence the time it takes to get a strata inspection report. In most cases an inspector will be able to search the records and prepare a report within a few days. However timelines can be blown out in some cases, such as in circumstances where an inspector is unable to get consent to inspect the strata records, or the strata management are not available to show them the records, or the records are not well organised or are incredibly voluminous.
What to look for in a strata report
There are countless strata report red flags, and it is always a great idea to ask your property lawyer or conveyancer to conduct a strata report review. With most properties in Sydney now exceeding $1million, the cost of paying for professional advice is negligible, particularly given the importance of properly understanding the issues.
That being said, here are some of the common issues that are found in strata reports:
Insufficient funds – We have often found strata schemes that do not have enough money in their accounts in order to meet their ongoing or unexpected expenses, which might include things like renewing insurances, or which may include capital works such as fixing the roof or repainting the building.
Special levies – when the strata scheme does not have enough money available in their accounts to cover upcoming expenses, they will have to raise what is known as a special levy, which is a one-off levy that is in addition to the ordinary administrative fund and capital works fund contributions. Despite being a one-off levy, special levies can sometimes be payable in instalments which can stretch over many months or even years. Contracts for the sale of strata property will typically include provisions about who might be liable for special levies, and so it is incredibly important to check this. Special levies can be a few thousand dollars, but can also be millions of dollars, depending on the needs of the building.
Disputes or disharmonies – Often minutes of the meetings might talk about or foreshadow some of the problems in the building. It’s important that these are carefully read to minimise the risk of buying a property with ongoing disputes or other issues (such as noise complaints or vandalism).
Building rectification issues – Many buildings have defects or deteriorate over time. This can lead to significant expenses for the owners of the lots in the strata scheme, and can also lead to widespread disruption due to ongoing construction which might restrict access or cause noise. If the property you are purchasing is an investment, this could lead to a tenant asking for reductions in rent.
Ongoing litigation – sometimes disputes between owners, with builders, or with neighbouring buildings might turn into court proceedings, and this can be very costly and stressful, as the owners of the building will typically have to cover the costs of legal fees and other consultants involved in the proceedings.
Who can look at my strata report?
A skilled property law specialist will be able to review your strata report. At Thornton + King our lawyers have reviewed thousands of strata reports, and are incredibly experienced in uncovering potential issues. When the costs associated with issues listed above can be so significant, obtaining a strata report and getting professional advice on your strata inspection report is an essential part of due diligence.
If you’d like assistance in reviewing a strata inspection report, give us a call or submit an enquiry now.
