September 2019 | Margaret Rouen
An Erskineville apartment block that was completed in April of 2018 is sitting empty following revelations that the developer didn’t properly clean up toxic land beneath the building. This is now the fourth block of units in Sydney that stand empty following structural safety concerns. NSW Greens MP David Shoebridge has described the properties currently in the news as “the tip of the iceberg.” As such, it remains high time for us to provide some guidance on how to avoid purchasing a ‘lemon’.
Before we get started, some essential property law concepts:
Strata title is a system which allows for individual ownership of a part of a property (known as a ‘lot’) as well as communal ownership of common areas such as external walls, pool areas, foyer, driveway etc.
‘Strata title’ commenced in 1961 and there are now more than 270,000 strata title properties across Australia.
An Owners Corporation (formerly known as a Body Corporate) is a legal entity that combines all ‘lot owners’ in a ‘strata scheme’. Practically, this means that all lot owners are members of the Owners Corporation. An Owners Corporation is created automatically when a plan of subdivision contains common property. The Owners Corporation have a range of responsibilities typically including, but not limited to:
- the maintenance of all common property;
- administration of the finances and communal funds;
- secretarial functions e.g. conduct of meetings, minutes of meetings etc.; and
- the appointment of a strata committee – a group elected by the Owners Corporation which administers the day to day running of the strata scheme.
Buying ‘off the plan’
Buying ‘off the plan’ means you are purchasing something that hasn’t been built yet.
Purchasing an ‘off the plan’ unit is not necessarily a bad idea in and of itself. It may constitute a wise investment when taking stamp duty discounts, tax benefits etc. into account.
These are our three hot tips to consider when purchasing in a unit/strata property:
1. Consider the developer’s reputation
Purchasers of units/strata title need to be highly informed on the status/record of the developer. Generally speaking the developer will be the owner of the land being developed and may procure the services of architects, building managers etc. to assist in the completion/ongoing maintenance of the project.
Potential purchasers should ask about the developer’s process for quality control as well as their policy on customer service following completion of the building. This is particularly relevant if buying ‘off the plan’.
Additionally, potential purchasers should be aware of the developer’s track record as well as their experience level – it is generally a good idea to steer clear of a property owned by a developer who hasn’t undertaken work before.
Potential buyers should perform a Fair Trading licence check to see if any disciplinary action has been taken against the developer.
2. Check the By-Laws!
The strata by-laws will be contained within your contract for sale. These are the rules that you (or your tenant) will have to abide by. There can be significant consequences to violation of strata by laws. Some examples of typical by-laws include no pets and no smoking. However, by-laws can also deal with authorised works previously performed on your property, and under what conditions they were authorised. For example, if authorised works have altered the common property, and the owner who was responsible for the works has since departed the property, the current occupant may be liable for the repairs.
3. Procure legal advice and have your lawyer/conveyancer obtain a strata report
It is crucial that you receive legal advice before purchasing any type of real property. Your lawyer, amongst other things, will ensure you enter into a contract with terms that are acceptable to you.
Potential buyers should request their lawyer obtain a strata report from a reputable strata inspection company. These generally cost a few hundred dollars and are invaluable in that they highlight potential issues for buyers that should be considered e.g. any upcoming special levies for works to be done and history of major works and repairs.
For specialist advice on your property purchase, contact us on (02) 9231 2466 or by email to firstname.lastname@example.org to speak with one of our specialist property lawyers.