Do your research before buying a property within a residential owners' corporation: Mark Armstrong
Property prices are on the move in the inner suburbs and as a result more and more buyers are going to find themselves priced out of the house market.
Instead, they will turn to townhouses and apartments as a more affordable alternative. In many cases, they are not just buying the title to a property; they are also taking on a wider responsibility to other owners in the development, by joining an owners' corporation (formerly known as a body corporate in Victoria).
Before you buy a property in a development with an owners' corporation, it’s essential to understand your potential financial liabilities and other responsibilities as a member.
An owners' corporation is made up of the owners of all the properties in a particular development, and is responsible for insuring, maintaining and improving the common property (that is, any part of the building and grounds that is shared by other owners).
Many corporations engage professional managers to run the organisation’s day-to-day affairs on their behalf, and pay them a management fee to do so. However, the manager is not legally responsible for the decisions and activities of the corporation.
Common property may include, among other things, external walls, roofing, fencing, rubbish bin corrals, driveways, shared courtyards and shared laundries. To pay for the upkeep of common property, members of an owners' corporation are generally required to pay regular contributions. They may vote to strike additional levies to fund expensive one-off outlays such as repainting the building’s exterior, repairing the roof or replacing the windows.
Before bidding at auction or negotiating a private sale, you or your legal representative should obtain an owners' corporation certificate which should form part of the vendor’s statement and tell you whether the corporation is planning any cosmetic or structural works, along with their estimated cost. Even when the cost is divided amongst a large number of other owners, your share may be quite high in dollar terms.
Given that you’re already spending hundreds of thousands to buy the property and pay associated costs like stamp duty, the cost of works to common property may be the straw that breaks the camel’s back—so it’s important that you consider them before going any further.
The certificate should also detail your share of ongoing owners' corporation fees (usually payable quarterly), which will help you budget for your holding costs over the long term.
Once you’ve purchased, it’s essential to take out appropriate insurance. Whilst the owners' corporation is responsible for taking out and maintain adequate insurance to the common property, that’s as far as their liability extends.
As an individual owner, it’s highly advisable to take out insurance that will cover the contents inside your apartment (if you’re an owner occupier) and include a public liability element in case a third party is injured on your premises. If you’re a landlord, it’s a good idea to take out landlord protection insurance to cover you in the unlikely event that your tenant maliciously damages your property or leaves without paying the rent.
The owners' corporation is also responsible for setting and administering rules which govern the activities of residents in relation to the common property. Depending on the corporation in question, these rules may govern issues such as affixing external air conditioning and hot water units, colours to be used in external repainting, acceptable uses for balconies, covering floorboards to minimise disturbance to residents below, and pet ownership.
The greater the number of apartments in a development, the more owners' corporation members there are, and the harder it can be to reach agreement on issues regarding the common property. Some owners are highly motivated, whilst others prefer to keep a lower profile and may deal with the corporation via their property managers.
Whilst every owner is responsible for decisions made by the corporation, most organisations appoint a Committee to co-ordinate the views of the wider membership and liaise with the manager. Whilst joining your committee is no guarantee that your views on a particular issue will win the day, it can provide a greater sense of participation in matters that affect you and your fellow owners.
By knowing your financial liabilities and ongoing responsibilities to the corporation before you sign on the dotted line, you’ll be well poised to enjoy the benefits of owning your townhouse or apartment right from the start.
Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and homebuyers.