Tips when you buying a property has the owners corporation

An owners corporation manages the common property of a residential, commercial, retail, industrial or mixed-use property development (Consumer affairs). When you are purchasing an apartment, flat or unit, then most likely you are buying into an Owners Corporation. Apart from the usual rates and taxes those who buy into an owners corporation are also required to pay OC fees.

Whenever a lot is on the market for sale, the owners corporation is required to produce an Owners Corporation certificate which forms a part of Section 32, this certificate provides information in relation to the fees the lot is required to pay, any potential future expenses for the Owners Corporation and rules and regulations if any relating to the OC.

Things to look out for
Fees – annual fees relate to ongoing day to day running of the owners corporation. For a typical apartment building, the administration fee pays for servicing of common area, eg, building insurance, administration, management fee, lift maintenance, fire services, cleaning, electricity, lighting, repairs and maintenance, etc. some buildings may have common facilities like a pool, bbq, gym, etc maintenance of these areas are also part of administration fee. Some clients ask us why is that an apartment building with a pool and a gym pays less than a similar apartment without these facilities, the answer is simple, regardless of the those services, large ticket items are all the same within each building, eg lift – cost of servicing a lift is similar with or without a pool or gym.

Maintenance fund – in Victoria, any building with over 100 lots is required to have a maintenance fund plan, and the owners corporation may decide whether or not to adopt the plan. If the plan is adopted, then fees are collected for future maintenance, which is called a maintenance fund (sinking fund) this is a like a savings account for the building. If a maintenance fund is not adopted, and the building is of some age, most likely years down the track a large special fee is required to cover cost of major works, eg external painting, replacement of lift, doors etc.
We have a client who bought into an apartment building and few months later was struck with a $4000 fee for external works, by surprise she consulted us the legality of the charge, after reading her owners corporation certificate, we found that for an apartment with over 50 lots, the owners corporation only had $30,000 in member’s fund and this was only enough to cover insurance and cleaning, the owners corporation chose not to save money for major works and when time comes, everyone had to folk into their pocket to come up with the money. This external work was also disclosed in the OC Certificate and advised that a “special levy is to be struck to cover the cost of works” obviously this information was not read or understood by the owner before purchasing the lot.

Most people have this mentality that the strata fees that they pay goes to the manager and that the manager should be servicing them in every way they can, unfortunately this is incorrect, out of all the fees paid to the OC, the manager gets a maximum 10% (approximately $250 per lot in management fee + $55 per lot for disbursements) of the fees as management fee, the fees you pay goes to external contractors who comes onto the property to service the building. To ensure you are looked after properly, it is vital that the manager is registered with SCA.