Pre-Purchase Building Inspections: What is the Strata Inspection Report? Part 1

When buying a property, it is vital that you arrange Pre-purchase inspections, which generally consist of Pest and Building inspections as well as Legal reports.

Pre-purchase inspections are essential to ensure that you are aware of any major or minor defects with the property you are about to buy. Not only that, but your conveyancer or solicitor will ensure that there are no title claims or pre-existing legal issues that you would inherit if you buy the house. To learn more about this step, click here to read: What is included in a Pre-Purchase Pest Inspection Report. These reports provide valuable insight into the physical and legal state of the property before you buy. However, when you are purchasing a property with Strata Title, things get a little more complicated.

What is Strata?

According to the Strata Community Association, Strata title allows "individual ownership of part of a property (called a lot’ and generally an apartment or townhouse), combined with shared ownership in the remainder (called ‘Common Property’ e.g. foyers, driveways, gardens) through a legal entity called the owner’s corporation — or body corporate, strata company or community association, depending on your state or territory of residence and the type of scheme.”

In layman’s terms, it is basically a set of bylaws that allow people to co-own part of a larger property (normally apartments and townhouses). It also allows owners to navigate issues that might arise around joining ownership. These bylaws determine certain rules that are mutually agreed upon - for example, whether owners can have pets, what the rules are around garbage disposal, and even noise.

To a potential buyer, the Strata Report is important as you will not only need to know of any issues with your part of the property, but also for the whole building itself including the building facade, hallways, foundation foyers, elevators and any other common areas. You will also be required to pay for the upkeep and maintenance.

The Strata Inspection Report

The Strata Inspection is an additional report that you need to arrange if buying a Strata Title. This should be arranged through your conveyancer or solicitor, and costs around $300. On occasion, though they are not required to, the seller will have a recent Strata Report that they have already paid for to pass on to prospective buyers, as it can be useful for the seller and real estate agent to address questions.

Importantly, a Strata Report should give you an insight into the financial health of the property, including what has happened in the past and what the plans are for the future.

If you own a Strata Managed Property, then you will be expected to pay ongoing Strata fees (sometimes called body corporate fees or levies) for the cleaning, maintenance and report of common areas and jointly owned structures.

Special Levies

A portion of Strata fees ( called sinking fund levies) is saved and placed into a sinking fund that pays for future repairs that will be needed. For example, repainting the entire building, recarpeting common areas, or other issues that may arise.

It is absolutely essential to know what the current level of the sinking fund is compared with future plans to ensure that they are covered. When a large or unexpected/unplanned work is required for the building and there is not enough money in the sinking funds, then you could be lumbered with what is called a “Special levy” i.e an additional charge that is shared between the owners to pay for unplanned and or urgent works.

So, if there is only $10,000 in the sinking fund but the elevator is due for replacement and the facade needs painting, you could end up sharing in bill way in excess of $50,000, soon after moving in!

Finally, depending on the age of the building and the levels of facilities and management, Strata fees can be an expensive ongoing charge. A Strata report will highlight these costs, and you should carefully consider these in relation to your personal budget, mortgage and other outgoings.

Continue to Part 2

In Part 1 above,  we considered the financial and legal implications of the Strata Report and why it is essential before purchasing a property. However, this report highlights more than just planned repairs and financials. Click here to continue to the second part of this blog. 

Written by Ben Saravia,  

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