What to check in strata reports before buying an apartment

With more buyers turning to apartments as affordability constraints hit home, strata reports have become an essential part of the homebuying process. However, when you are looking at multiple properties, the cost of legal fees can quickly add up. So it’s helpful to know what to look for yourself before deciding whether or not to continue with the potential purchase by getting the report reviewed by a solicitor.

STRATA MATTERS

When you buy a unit or a villa in a body corporate scheme, you aren’t just buying the individual property, says Melbourne buyers agent Mario Borg.

“You’re also buying into the building’s financial health and management,” he says.

“The strata report shows whether the complex is well-run or if there are costly problems waiting to surface.”

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Items such as the strata’s sinking fund, used to cover major repairs and maintenance, and its administration fund, used for daily running costs, can indicate the financial position of the complex and how prepared it is for any unexpected issues.

Sydney buyers agent and director of Bought Agency Bianca Field says it’s essential to check the strata report of a complex carefully.

“A strata report is a health check of the building,” she says.

“It shows you any hidden structural issues and any future expenses that might be of concern that go outside of the apartment itself.”

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Buyers agent Bianca Field from Bought Agency. Picture: supplied

WHAT TO CHECK

If you are serious about buying a property, you should always get your solicitor to review the strata report first.

However, before taking this crucial step, it may be useful to look for certain red flags that could indicate major problems. Borg says large special levies, underfunded sinking funds and repeated building defects could “signal bigger issues that may require legal review” – as could owner disputes with the body corporate.

Field says she starts by checking the capital works or sinking fund and the admin fund as well as whether there are any special levies. She also reads the minutes.

“A lot of the time, the minutes have additional information that isn’t highlighted in other parts of the strata report. They might highlight issues such as water leaks, structural defects or neighbour disputes and already planned projects and any legal action that they might be under.”

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Buyers agent Mario Borg. Picture: supplied.

WHEN TO ABORT

Depending on what you find in the report, you may decide not to proceed any further with the purchase.

Field says she doesn’t proceed further if there is no clarity given on the cost of any works intended or scheduled to be carried out. She also doesn’t proceed if the cost of any work is going to outweigh the benefits of buying the property.

Borg says it’s usually not worth going further with a purchase if there are “significant building defects with no resolution in sight, major financial shortfalls in the strata fund, or evidence of ongoing disputes that could lead to legal or financial headaches.”

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You may not want to go any further if building defects are highlighted in the report. Picture: Google

WHEN TO CONTINUE

An ideal strata report is one that has a healthy sinking fund and no major unresolved defects, says Borg. It also has an owner’s corporation that is managed well with financial transparency.

“That’s when it makes sense to engage your solicitor and continue due diligence,” he says.

Having said that, there may be some items that appear alarming but shouldn’t necessarily be treated as reasons not to proceed further, he says.

“Minor defects, recent special levies that have already been paid, or routine disputes (like noise complaints) – these aren’t deal-breakers but still worth having your solicitor examine,” he says.

Field says it’s helpful to know what your unit entitlement is, that is, the percentage of levies you will pay relative to your ownership in the scheme. That way you can calculate your cost as an owner if there are budgeted works coming up.

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If you decide to proceed you should then engage a solicitor for a full review.

SIGNS OF AN IDEAL STRATA REPORT

Buyer agent Bianca Field says the following conditions are considered ideal when it comes to strata reports.

* A strong sinking fund – there should be enough to cover major maintenance and repairs

* A balanced administration fund – funds should be meeting day-to-day expenses without needing frequent special levies

* Regular modest levy increases – these should stay up-to-date with inflation

* Well attended AGMs – it’s good to have a complex with owners who are engaged and care about the upkeep of the building

* No chronic disharmony – there may be some conflicts occasionally but not major rifts, longstanding issues or legal battles

* Preventative works – evidence of preventative works carried out to show how well the building has been maintained

* Capital works plan – a solid 10 year capital works plan so you feel confident in the costs coming up

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