What issues can come up with a self managed Strata building?

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Every so often we come across a small block of units or townhouses that have a self-managed owners corporation. This can be a very effective way to keep costs down if all units are owner occupied and all owners have a vested interest in ensuring the building is well maintained. But there can be pitfalls for buyers, particularly if an investor is looking at buying into the complex, since they often won’t want to be as involved as someone who lives there.

Other areas of risk include a new personality type entering the mix. The previous band of owners could have been a really sociable bunch and a newcomer may not fit in as well as the outgoing owner. Or the existing owners are all retired and annually vote to keep levies low. Along comes a young new neighbour who wants to shake it up a bit because they see that the building needs a repaint and the foyers are shabby. Not exactly a recipe for domestic harmony. Unless someone on the committee is experienced in the areas of strata management, asset management or accounting, for instance, the record keeping may be a little short on detail.

And then there is the area of compliance, a minefield in itself. Getting a strata report may be difficult, as the inspector has to wade through shoeboxes of receipts and hand written notes. It is likely that the report will be full of massive gaps of information. For instance:

  • What are the sinking fund and admin fund balances? Are they adequate?
  • Is the building insured? For how much? Is it enough?
  • Has the Annual Fire Safety Certificate been lodged with council?
  • Have they done a 10 year sinking fund forecast? Has it been reviewed within the last 5 years? And do they follow its recommendations?
  • What looming building issues are there?
  • Do they even know what big capital costs might be incurred by owners in the future?

Buying a property is risky business. If you are buying into a building where you don’t get much of a say in the way it is run, then you could be setting yourself up for a very stressful life. Information is power and if you can’t get enough to satisfy yourself that the building is well run, I’d be very careful about signing a contract of sale.

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