Evaluating The Purchase Decision For A Sectional Title Unit
Before you buy a unit in a Sectional Title complex – the Estate Agent can assist you with this
Investing in a residential property is often one of the biggest investment decisions a person can make. For many, buying a sectional title unit is particularly stressful because of the uncertainty and unfamiliarity with evaluating the well being of the body corporate which has an important bearing on the purchase decision. From a budgeting perspective it is very important to evaluate the outlook for levy increases, whether a special levy may be raised and importantly whether the body corporate has funds to carry out maintenance.
The criteria listed below are relevant and important body corporate governance and financial elements which should be evaluated as part of a ‘due diligence’ of the body corporate to inform the purchase decision. It may be a good idea to ask your estate agent, an experienced friend or colleague to assist as a second opinion with evaluating the body corporate’s well being.
We suggest your complete the checklist below to collect and review relevant body corporate information:
1) Who is the Managing Agent? Get a copy of the Management Agreement
2) Do deeds searches to see which units were sold recently and at what price
3) What is the SS number? How old is the complex? – After 5 years you cannot go back to the Developer with snags
4) Who was the Developer? Is he still involved in the complex – does he still own units?
5) What is the ratio of owners vs tenants in the complex?
a) Are they registered with CSOS?
b) What is the CSOS levy of the unit you are looking at?
c) Ask for copies of all the orders given by CSOS for this complex
7) Get a copy of the Sectional plans from the Deeds Office/Surveyor-General to see what you are buying
a) Check floor area of your section
b) Does the boundaries of your section in real life correspond with the boundaries shown on the plans? If not then the owner extended his floor area illegally and must rectify it before you buy otherwise it will become your problem.
c) What is the participation quota?
d) Are there any exclusive use areas?
e) Are they selling you something that is not theirs to sell?
8) Get a copy of the Building plans from Council
a)Did the owner make any changes to the inside of the section that is not shown on the plans?
9) Check what, if any, title deed conditions were imposed by the developer or the local authority for the scheme – these could restrict your ability to lease or transfer your property.
10) Is there a Section 25 Real Right of Extension reserved (will show on the plans) – this means the Developer can come back and add more sections or exclusive use areas to the complex
11) Get a copy of the Management and Conduct Rules filed at the Deeds Office (before 7 Oct 2016) or approved by CSOS (after 7 Oct 2016) – if it differs to what they gave you report that to them – the Rules are only enforceable if filed at the Deeds Office (before 7 Oct 2016) or approved by CSOS (after 7 Oct 2016)
a) How does the rules restrict the use of your unit?
b) What does it say about pets?
b) Does it make provision for penalties
12) Inspect the complex
a) What is the status of the common property – does it need maintenance/ repairs?
b) Do the units all look the same – or are people doing whatever they want to?
c) If it is plastered remember that there will be a special levy every couple of years to paint the buildings
d) How does the security work – what do they have in place? Is everything in a good working order?
e) What amenities are available – swimming pool etc – are they in a good working order? /properly maintained?
f) Do you have proper parking?
g) Is there visitors parking?
13) Inspect the unit
a) How good is the soundproofing?
b) Are there maintenance requirements that needs to be sorted out before you buy?
14) Ask for certain documents
a) The last approved audited financial statements
a) What audit opinion was given?
b) What was the cash position of the complex and what was their cash flow like during the year?
c) Is the complex solvent i.e. Assets greater than liabilities?
d) Is the complex liquid i.e. Current Assets greater than Current liabilities?
e) Do they have large debt?
f) What was the income statement performance like for the year?
b) Monthly financial reports for each month of the current financial year
a) What is the total of arrear levies? What is being done to collect it? What is the debt collection procedure followed?
b) Is there a reserve fund? This is required by law
c) What is the current financial position like of the complex? i.e. Solvent and/or liquid
d) What is the balance of the admin fund and how has the performance been for the year.
e) What is the bank balance like and how does it relate to the financial statements?
f) When was the last levy increase? And by how much?
c) The approved 10 year Maintenance plan – this is required by law
d) A levy schedule – what is the monthly levy of your unit? Is it calculated correctly ito the participation quotas or are they working on nominated values?
e) Trustee resolution regarding levies – if there is no Trustee resolution they cannot legally raise levies
f) Trustee resolution regarding interest on arrear accounts
g) Trustee resolution regarding handing accounts to attorneys for collection
h) The last approved budget –
i) What is included in the levy?
ii) What do you have to pay over and above the levy?
iii) Are there any special levies planned for the near future?
iv) How does the electricity consumption work?
v) How does the water consumption work?
i) The last Annual General Meeting’s minutes – is there anything that raise alarm bells
j) The Trustee meeting minutes for the current financial year. In the minutes you will see what issues they have
i) Complaints from owners
ii) Maintenance issues
iii) Financial affairs
k) Details of any legal action in process – except the action ito arrear levies
l) Insurance policy and proof that the premiums have been paid up to date
m) A copy of the council accounts of the section – each owner pays their own rates – and you can be held liable for outstanding accounts of the previous owner
n) The current list of outstanding Creditors of the Body Corporate – this could also mean the raising of a special levy