The importance of a due diligence checklist before buying a strata property

What is due diligence in Property Investment?

This term refers to the research and inspections done for a property before buying it, in order to make sure that it is a good investment before signing any contracts. It is when you thoroughly check the property for any issues that may affect that property in the future, or could impose obligations or restrictions on you as the owner. Doing your due diligence and following a comprehensive checklist will help to eliminate surprises once you purchase your new strata property, whether that be to live in, or as an investment.

What should be on your Property due diligence checklist?

Real Estate agents and sellers are obligated to make a checklist available to all buyers of any property. This checklist should include the following items so that you can be confident you are investigating the property thoroughly as a potential buyer:

• Buying into an owners corporation - What forms the common property (e.g. driveways/grounds), what are the fees and rules for you to use these as part of your strata property ownership, and importantly, how reliable is the owners corporation management team (see below for further information around this)?
• Urban Living - While high density areas (which is where you often find a strata property) have their attractions such as close by entertainment, restaurants and transport options, they can also often have increased traffic noise, odors from neighbouring businesses and other properties. Therefore, when inspecting the strata property pay attention to the area and get a good understanding of what your surrounding noises and smells are.
• Growth areas - Some properties require you to pay a growth areas infrastructure contribution so it is important to find out if you need to pay this extra State infrastructure fee.
• Proposed or granted planning permits - You should also check to see if there are any other proposed or issued planning permits for other residences or businesses to be built close by. This may cause extra noise or even traffic hazards in the future depending on how close the new planned properties are being built to you.
• Flooding and bushfire risk - Some areas and locations have a higher risk of fire and flooding, so it is essential to investigate if there is any potential for your property to be more vulnerable to these natural threats. You need to consider what this means for insurance, and if in a strata property, how it could implicate the building or group of townhouses you reside in.  
• Utilities and Essential Services - Some of these services might not be available to you in your new residence or they may require an extra fee that needs to be paid to be connected. You may also find with a strata property that you need to choose from a range of services which will, of course, vary in price. The strata management should be able to assist you with this list and what is available.
• Safety - The big question here is whether it is structurally safe and suitable for you to live in the premises. This is where having a professional building inspector review your property is essential to ensure that all your electrical elements are safe, check for any mould present or even asbestos, and do a general structural examination amongst other things.
• Building Permits - If on viewing the property you are considering doing any renovations, you may want to investigate any rules and regulations around this and find out if you will need approval from your owners corporation and/or seek building permits. You should also check your strata by-laws regarding the process for how these renovations can be carried out. 
• Buyers Rights - It is important to know what the rules are around your private sale or auction. Things to think about asking would be what your cooling off period is, what your rights are if you are buying off a plan and any other important information that may be pertinent to the specific strata property you are buying. It is essential to seek legal advice and engage a lawyer or conveyancer to help you understand your rights and the contract, and you should do this before you commit to the sale. 

Other things to consider specifically for a strata title:

Aside from this checklist, we also recommend you do some extra formal searches and reports as well as other investigations of your own when you are specifically considering buying a strata property.

• The main thing we recommend if buying into strata, is to request a Strata report (or equivalent for your state) before you purchase. This report should, as a minimum, include the financial reports for the strata scheme, the budgets for the next 10 years, levy costs and any pending building works. There should also be minutes of strata meetings which you can use to identify if any major issues or defects have been highlighted at these meetings. By requesting and reviewing these reports you are looking for information and evidence that the strata property is maintained, well run by the owners corporation and is adequately financed.
• Conduct specific searches on the strata property. While most property purchases will have searches that you undertake before signing a contract there are some specific ones that you will want to do if you are purchasing a strata unit or townhouse as part of an owners corporation. Some of these include the Community Management Statement, Form 13 Information Certificate (levy information, by-laws, etc.), and a Body Corporate Orders Search (or refer to your state for the varied name of each) to find out if there have been any disputes. The main takeaway here is to make sure you speak to your solicitor before signing any contracts, so they can run these searches for you and ensure relevant clauses are added to the contract if necessary.
• Here are a few tips and tricks we recommend you do to check if you are buying into a well run strata property and have a good owners corporation management team that maintain the space.
  • Check out the bin rooms. If they are tidy and smelling reasonably fresh you know that the owners corporation committee is on the job of ensuring that the place is kept clean.
  • Investigate the gardens and exterior. Are they neat and tidy or do they need a bit of maintenance? This is another good indication of how well the strata management are running the property.
  • Does the building run their own strata or do they run it through a company? If after checking the strata roll you discover it is run by a group of volunteer owners you will need to thoroughly check they understand and are undertaking all strata management requirements. If it is run by a company, do a quick Google search and check their reputation.
  • How does the entrance foyer look? This first impression may affect how your property looks and its value down the track.

If you are considering purchasing a property in a strata community and want some more advice please contact your local knowledgeable and friendly Ace Body Corporate Manager.