Reference
Buying an apartment: strata reports, levies and the traps
How to read a strata report, what a thin capital works fund really signals, special levies, defects, by-laws, and the questions the minutes answer.
14 min read
Buying an apartment means buying two things: the lot, and a share of a small company that owns the building around it. The second one has debts, plans, disputes and a decision-making history, and all of it is written down. Almost no buyer reads it.
What you actually own
Your lot is generally the airspace inside the boundaries shown on the strata plan - typically the internal surfaces of the walls, floor and ceiling. Almost everything structural is common property, owned by the owners corporation collectively.
- Common property normally includes the structure, roof, external walls, windows in many schemes, and waterproof membranes
- The owners corporation maintains common property and levies owners to pay for it
- Your share of costs is set by unit entitlement, which is not always proportional to floor area
- By-laws bind you - pets, parking, renovations, short-term letting, flooring materials
- Your vote at a general meeting is weighted, and can be outweighed by a single large owner
How to read a strata report
A strata report is a bundle of records from the scheme. Read it in this order, because the most decision-relevant material is not at the front.
- 1The minutes, last three to five years, first
This is where problems appear years before they appear as money. Look for repeated mentions of the same defect, engineers engaged, quotations sought, or legal advice obtained.
- 2The capital works fund balance, against the plan
Compare the balance to the ten-year plan. A building approaching major work with a thin fund means a levy is coming, and the buyer at settlement pays it.
- 3The financial statements
Look at whether ordinary levies cover ordinary expenses, at arrears levels, and at any borrowing. A scheme funding routine maintenance from the capital works fund is running a deficit by another name.
- 4The by-laws
Pets, flooring, renovations, parking, letting. Also any by-law granting one lot exclusive use of common property, which changes what you are buying.
- 5Insurance
Confirm the building sum insured is current and reflects a recent valuation, and check for any excess specific to water damage, which is the most common claim.
- 6Disputes and orders
Tribunal proceedings, orders against the owners corporation, or building defect claims in progress. These become your problem proportionally.
Defects, cladding and remediation
Buildings constructed during the apartment boom have a well-documented defect problem, and the cost of rectification falls on owners, not on the original builder in most practical cases.
- Combustible cladding - check whether the building appears on any state register and whether rectification is funded
- Waterproofing failures, which are the most common serious defect and the most expensive to fix
- Structural cracking or movement recorded in engineers' reports
- Fire safety orders, which carry deadlines and costs
- Any statutory warranty period still running, and whether the owners corporation has acted within it
Questions to put in writing
- Is any special levy proposed, under discussion, or recently struck?
- What is the current capital works fund balance, and what does the ten-year plan require?
- Are there any current or threatened legal proceedings involving the owners corporation?
- Have any building defects been identified, and is rectification funded?
- Are there any outstanding orders or notices from council or a fire authority?
- What are the by-laws on pets, flooring, renovations and short-term letting?
- What proportion of lots is owned by any single owner?
- Is there any exclusive-use by-law affecting common property near this lot?
Unit entitlement, and why it matters more than you think
Unit entitlement determines both your share of every levy and the weight of your vote. It is set when the scheme is created and is not always proportional to size or value. Two apparently similar apartments can carry materially different shares of a $2m rectification bill.
Check your lot's entitlement against the schedule, and against what you would expect from its size. An anomaly is not necessarily a problem, but it is worth understanding before you agree to fund a share of everything for as long as you own it.
Reading 300 pages you were given on Thursday
The strata pack is the clearest example of disclosure without explanation. Everything above is in the documents. It is simply spread across years of minutes, financial statements and by-laws, and handed over days before an auction.
TrueBuy reads the whole pack alongside the contract and building report, and reports each finding with the quote and the page - the resolution in the minutes, the fund balance, the by-law - so you can ask the owners corporation a specific question instead of a general one.
Read the minutes, not just the levy notice
Upload the strata report with your contract. Every finding comes back quoted and paged, free while we are getting started.
Common questions
What is a special levy and how large can it get?
A one-off charge on every lot to fund work the ordinary levies cannot cover - usually facade repairs, waterproofing, roofing, lifts or remediation. On a mid-sized block they commonly run $10,000 to $30,000 per lot, and on major defect rectification they can pass $100,000.
Where does a special levy show up before it is struck?
In the committee minutes, usually as a resolution to obtain quotations or engage an engineer, often a year or more before any levy is formally raised. That is why the minutes matter more than the current levy notice.
How much should be in the capital works fund?
There is no single correct figure, but the scheme should have a ten-year capital works plan and the balance should be tracking against it. A large older building with a small balance is the clearest single warning sign in strata.
Can I renovate my apartment?
Cosmetic work is usually fine. Anything touching common property, waterproofing or structure needs owners corporation approval, and in many schemes a by-law. Bathroom renovations are the classic case - the waterproof membrane is often common property.
Is a strata report worth the money?
Yes, and it is the cheapest serious protection available on an apartment. A few hundred dollars against a special levy in the tens of thousands. The difficulty is not obtaining it, it is that it can be several hundred pages and buyers skim it.
Where these figures come from
- NSW Fair Trading - strata schemes and living in strata
- Consumer Affairs Victoria - owners corporations
Grants, thresholds and duty rates change. Always check the current rules with the relevant state revenue office or Housing Australia before you rely on a number here.
Information, not legal advice. Confirm with your conveyancer before acting.