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Real Estate & Strata Living



According to Australian Bureau of Statistics (http://abs.gov.au) in 2011 (census data can be found here: http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0?opendocument&navpos=220), there were around 2.8 million people who lived in a flat, apartment or unit, which can be classified as "strata living". This number can be a bit higher at the moment, but still represents more than 10% of the population.

Strata living rules (http://www.fairtrading.nsw.gov.au/Tenants_and_home_owners/Strata_schemes.html) that supposed to make communal living of people in NSW more streamlined and easier and to help resolve problems if required, in fact leave a lot of space for corruption, various issues, including loss of property value, defects, conflicts and confusion. However it would be short-sighted to just review the strata living rules in isolation from the way people tend to live here, from Australian laws and enforcement and the reality of implementing conflict resolution practices. Therefore it’s worth researching to provide examples of improper rules implementations, context of the problems and potential solutions.

Owners Corporation

- Heterogeneous interests and types of owners. All owners have different goals in regard to their property. Some people buy property to live and enjoy, others to rent out or to hold and sell. Also the attitude of bigger investors, like management companies or real estate agents is different to the individuals involved. Also most of the owners for various reasons do not have much time to spend on resolving the issues. In addition to the above, the quality of information about rules and the way all those strata management structures are set up and what to expect, together with the rules enforcement weaknesses, make it all even more confusing.

- Executive committee. Majority of the owners perceive the executive committee together with strata manager as an omnipotent entity. They do not actively participate in any activity related to the entire building or even with their own unit, but request action if any problem arises.

Therefore it’s very hard to get something done even if there is more than one owner concerned about the issues. 

New Buildings

 - Ownership transfers straight after the building finished. Developer in many cases decides originally who will be the managing agent for the new strata title. Numerous new owners including big institutions and individual owners are getting into and out the process within the period of up to two years very frequently. Placing fellow strata managers who may behave not in favour of the owners corporation may go unnoticeable by majority of owners or even if they notice the problem majority of them will not complain openly. However this should be regulated more thoroughly, because negligent strata manager may become an expensive problem to owners and the building.

- Negligent owners. Many owners just do not know the rules very well and are afraid to seek proper legal advice, because it is considered unpredictable and expensive. In addition to that it is really very hard to get proper advice from the regulating authorities (i.e. Department of Fair Trading).

- Scum developers and vendors. In addition to fellow strata managers vendors and developers may do the following:
- Getting acquainted people part of the owners corporation and corrupt the process of decision making or pushing decision in their favour if the developer/vendor has done something wrong at the building stage and they try to fix it on the owners corporation expense.
- Not providing necessary documentation about the building. There is a penalty for doing this, but in practice not many owners go this way, because they think legal way is unpredictable and expensive.

Building Defects

 – Vendors and builders often ignore the rules and contractual obligations. This is in addition to toothless persecution mechanism and very slow authorities’ reaction to those issues. One example, if in the contract of sale the vendor has to rectify defects within 6 months (for new unit) and they breach it the only way to resolve this is to go to court. This process is considered painful and expensive so many people just leave it as is and are enforced by the circumstances to accept this situation.

- Obscure and not clearly communicated property rights. If there is a building defect near or inside the unit and the strata manager doesn't provide any information, the only way to obtain it is to seek legal advice as of who is responsible to fix that. The builder is in many cases responsible for the building defects, but in reality the builder is mostly negligent and doesn't have much interest in rectifying the defects properly.
With all above majority of the honest owners are not safe when confronted by some or all of those issues and therefore may experience significant property value loss and degradation of their property enjoyment though the property prices are very high and for many Australians purchasing a unit or apartment in strata title is a more achievable realization of their dream than buying a house.

So it is worth trying to find out the resolutions:
-          How to improve the strata living?
-          What could be the practical advice in regard to dispute resolutions?
-          Maybe some legislation changes could be proposed?
 
That should help improve the strata living and make better future for many Australians.

Practical Advise 

Before buying a new strata unit, even if it is brand new, make sure to do the following:

  • Review the Contract of Sale yourself. Check all the entities involved by contacting them directly and request that they consent to the certain clauses of the contract where those entities are mentioned.
Example:
In the contract of sale there is a clause about defects and in case of dispute "the matter shall be referred to an arbitrator appointed by Royal Australian Institute of Architects NSW Chapter". When the owners contacted the Institute they were told that "The Institute did not consent to this obligation". Which means that even solicitor who created the contract text was not correct in putting this information into.
  • Try to avoid Building Management Committees (BMC, more info: http://www.dynamicproperty.com.au/building_management_page.html). From the high level BMC is a way to manage complex buildings that include residential and commercial components. The idea is to simplify things, but in reality majority of owners don't really understand how that works which leads to confusion and fraud. The other problem is that those BMC structures may not be properly set up legally. That leads to a situation when different parts of the building have different information about the structure or no information at all. It is extremely hard to rectify when there is more than 2 units.
  • Check the strata managing agent, talk to your friends about them. Check the strata managing agent fees that the building is currently paying. After you buy your unit it will be in some cases very hard to replace the current strata manager!
  • Always make sure you get legal advice from a good lawyer who has got experience or specializes in the property matters. Example of a good law company: CBP Lawyers. Of course the laws related to the property could be found in public domain, but it appears that there is a bit more to this than just law. 
  • This is important - obtain a building defects report for the unit you are buying prior to the sale! It will save your time, money and preserve your property value in the future. Also consider engaging a CTTT certified specialist to do this report.
After you bought a unit:
  • Nominate yourself to the Executive Committee straight away! It will give you the opportunity to be across all the issues related with the building and to vote on critical decisions. Sometimes executive committee may conceal important information from the owners and it may be too late in some cases to fix the issues after time. So it's better to be there and understand what's going on.
  • Always use your own source of legal advice. Don't take the strata manager advice as a source of truth. Strata managers may have their own interest and relationship with the vendors, developers and builders - so their advice may not be 100% correct.
  • If there are any defects in your unit - never communicate with the vendor/builder just by means of phone or in person! Always send an email with your request. If they don't respond - it's their fault. An email should be addressed to the exact vendor/builder name as per your contract of sale and other documentation. In this case if you have a dispute it would be much easier for you to work it out properly, because you would have all the documented evidence to support the matter.   

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