What is a strata inspection report and why is it important? 

Investing
June 2022

What is a strata inspection report and why is it important? 

A strata inspection report is a report that should be obtained by each investor of a strata-titled, community-titled or company-titled property, whether it is a residential or commercial property. The report is vital in that it details the actual and anticipated financial liabilities of the corporation the purchaser will join. In addition to highlighting any non-compliance with the regulations, discord among the unitholders, litigation against builders or tradespeople, and any particulars relating to the apartment bylaws, the strata report should also mention compliance issues.

You should do your due diligence before purchasing an investment property, especially if it's a strata property.

Unlike a house, when purchasing within a strata scheme, it’s not just the lot or apartment you own. In addition, you will own a share of the common property determined by your unit entitlement, for which you are responsible for keeping it up to date and repairing it via your strata levies.

What to look for in a strata report: 

  • Age of building 
  • Size of building 
  • The number of repairs and maintenance work involved 
  • Type and amount of common property facilities (a scheme with swimming pools, gyms, and concierge service costs more to run than a scheme with limited facilities)  

Strata schemes differ from property to property. Strata inspections can provide you with information regarding the voting rights of the owners, the meetings they hold, concerns that need attention, and how a property is administered. Additionally, the by-laws discuss the rights and responsibilities of owners, including complaints and garbage disposal. 

It will provide insight into which areas of a property you do not agree with, allowing you the option of changing them if you have not yet made an offer on the property. 

Important things to look for in your strata inspection report:

Here are five key areas to pay special attention to:

  1. Financial records – Is the Owners Corporation raising enough money to run the building? Is there a big enough reserve to cover ongoing maintenance and higher one-off costs should they come up? Review all special and quarterly levies, as well as how those levies are being utilised. It’s also worth checking the Administrative Fund and Capital Works Fund. Administrative Funds cover the day-to-day costs of strata schemes. This fund is not likely to hold a large balance, but it should be enough to cover small expenditures. Capital Works Fund grants funding for larger projects and maintenance, and the forecast for these types of projects is typically prepared by a professional, such as a quantity surveyor. Forecasts of future revenue are helpful indicators of the owners' ability to cover future expenditures.
  2. Disputes - Is there any evidence of disputes between building residents or within the Owners Corporation? Whether you’re planning to live on the property or not, you’ll want to make sure there’s a harmonious track record.
  3. Building defects – Keep a very close eye out for major building defects such as falling facades or water penetration in the building’s history. Past records can give you an idea of the property's current condition, but they can't predict the future. Consider researching the builder and developer if you are purchasing in a new building. Check their websites and your state's Fair Trading website to make sure they are properly licensed and do not have any disciplinary actions against them. Talking to existing owners in the building may also uncover any issues with the building. 
  4. Compliance with legislation – Does the Owners Corporate comply with fire safety & WHS requirements, strata insurance and asbestos management? If they’re not properly meeting their legal obligations, this should be a red flag.
  5. Poor strata management – Can you trust the strata manager to keep the necessary paperwork up to date, look after the financials and resolve any issues or concerns building residents may have? Make sure you read all available meeting minutes and written correspondence to see how issues have been handled.

If you have any questions, get in touch!

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