In NSW there are changes being outlined for this situation. These include:
1a) Requiring realistic levies to be set in the initial period and for the first year after the initial period ends. The budget is to account for the supplied maintenance schedule.
There have been cases where developers use their influence either in the initial period or at the first AGM to set the annual levies at unsustainably low levels in order to help with unit sales. This can lead to a big jump in levies in future years as the new owners face the realities of running a strata scheme.
To avoid this happening in the future, the owners’ corporation will be able to take the original
owner (that is, the developer) to the Tribunal if it can be shown that the original owner used its influence to set unrealistic levies during the initial period and/or for the first year of a scheme after the initial period ends.
1b) When registering a scheme, unit entitlements must be determined based on an independent valuation.
Developers are responsible for determining the unit entitlements of each lot when a strata scheme is first registered. There is often no scientific method in allocating unit entitlements and there have been cases where unit entitlements have been set up in an unfair way, either intentionally or unintentionally.
Sometimes lots may be given the same unit entitlement, despite the lots being different sizes. Other times, different unit entitlements are allocated to lots that are essentially the same size. This reform will introduce more transparency to the way unit entitlements are set.
Unit entitlements are important, as this is how levies are determined. Some votes of the owners corporation can also be on the basis of unit entitlements.
1c) Allow for income earned by a scheme and any special levy to be paid into either the administrative fund or sinking fund.
Some schemes earn income from external sources, such as from rents, which must be paid into the sinking fund. This can result in excessive amounts accumulating in the sinking fund, which owners are not reasonably able to use. It is proposed to allow this income to be paid into either the administrative fund or the sinking fund. This will enable schemes to direct resources to where they are most needed.
When schemes raise special levies it is often to meet expenses of a capital nature that may
not have been fully budgeted for, yet the current law restricts special levies to the administrative fund. This restriction will be removed.
2. How does it benefit me?
2a) This will benefit any new owner in a strata unit because the need for a special levy shouldn’t’ arise if levies are set at realistic prices at the outset. By stopping a developer from manipulating levies throughout the selling stage, it will enable the new owners to get a realistic sense of the costs that they are up for throughout the life of the individual unit and building. This should allow the individual owner to budget more effectively.
2b) By allowing for individual valuations on unit entitlements it will result in a fairer process for the new owner. Every lot will be given the same entitlement and everyone will be able to see the process undertaken. By allowing an independent evaluation it will alleviate the ‘guess work’ from a unit entitlement, which can impact upon levies, voting rights, right to share in distributions, compensation and your obligations to repair.
2c) By removing the restriction on enabling the sinking fund to utilise funds more frequently, it will enable any essential and/or non-essential works to be carried or building upgrades or even beautification of the premises and its surroundings.
Any additional revenue going into the sinking fund will now be able to be used as necessary by the owners’ corporation.
By freeing up capital, it should result in special levies being allocated to those pressing issues that the sinking fund was established for.
3. What do I need to look for?
3a) How much are the levies? Are they too high? Do they seem inappropriate to what other friends in similar strata blocks are paying? What are my voting rights? Do I have the same as everyone else? Do I incur the same expenses as everyone else?
3b) Does my unit entitlement seem fair? Do I have the same allocation as everyone else in the block? How was my unit entitlement evaluated?
3c) How much money is in the sinking fund? What is it been allocated to? Does this work need to be done? Does this mean I will have to invest more money later into the sinking fund?
4. How can strata finance help me?
Strata financing can help you get the funds you need quickly to undertake any urgent repairs work.
Strata financing has been established for the sole purpose of providing innovative loan products to strata schemes free of mortgage constraints. Strata financing has developed loan products specifically so building works can be undertaken without the need to raise lump sum additional levies from lot owners.
A strata loan can sort the situation out quickly so at the very least the building repairs are carried out, which will stop the cost blowing out. Of course, should someone be injured the issue of legal liability will come into play and if the owners corporation are deemed negligent if the area remains unsafe, the whole bill could become a lot more expensive.
Strata financing can be used to pay for any special levies raised due to juggling money between funds and even to pay for any unpaid levies. This also allows the scheme to remain financial while the debts are being secured. Once the debts are recovered, the loan can be paid out.
Strata financing allows for you to spread your costs over a number of years and eliminates the shock of that initial upfront cost, which many owners don’t have.
Pula Capital specialises in strata finance.