Episode 103 | Strata owners - rights & obligations | Amanda Farmer, Your Strata Property

What are strata owners' rights and obligations when faced with building defects and maintenance issues?

Amanda Farmer returns to the Elephant in the Room Property Podcast to discuss all things Strata. Amanda is the Director of Lawyers Chambers on Riley and Founder of Your Strata Property. With 16 years under her belt as a specialist Strata Lawyer, Amanda is a respected and well known authority in the property market. In this Episode Amanda opens up on the rights and obligations of strata owners and looks at the case study of Mascot and Opal Tower.

Here’s what we covered:

• How building defects impact strata owners

• What are the strata challenges facing Mascot and Opal Tower

• How to have your say as a strata owner?

• Is Opal Tower legally obliged to repair the building?

• What are your rights as a strata owner

• Why your strata report is important

• How to learn more as a strata owner

• How embedded network contracts can impact strata owners

• The importance of strata meetings

• Why you should always do your due diligence

MENTIONED EPISODES:
Episode 25 | Amanda Farmer
Episode 1 | Simon Russell

GUEST LINKS:
Lawyers Chambers on Riley
Your Strata Property - Website - Podcast

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

EPISODE TRANSCRIPT: 

Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 14 November, 2019.

Veronica Morgan: Your listening to the elephant in the room property podcast where the big things and never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book auction ready how to buy property even though you're scared shitless.

Chris Bates: and I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free fool or forecaster report. Which experts can you trust to get it right, the elephant in the room.com. Dot. AAU.

Chris Bates: please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo, the weight coming up

Chris Bates: before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Ever wondered where the buck stops when things go wrong in Australia. Total building, what happens to the poor last standing owners in mascot towers. For example, if a whole bunch of owners go bankrupt because they can't afford to contribute to major building repairs, that will have to be done before they can all move back into their apartments. I was having dinner with straddle lawyer, Amanda Farmer a while back and we were talking about the impact of building defects on individual owners. She shocked me when she revealed something about own obligations that I had no idea about. In fact, I'd wager very few strata owners would know about this, so of course I've asked her to come in and share this knowledge with you. Now. This isn't the first time we've interviewed Amanda back in episode 25 we talked at length about the hidden dangers of buying brand new and off the plan apartments and of course we recommend you go back and check out that episode. She's also a fellow podcaster hosting your strata property, which is an excellent source of information for apartment and townhouse owners as well as industry professionals. Thank you for joining us again, Amanda. I know you're going to share some big elephants with us today.

Amanda Farmer: I hope so. Yeah, there's a few to be revealed. Thank you very much for having me on the show again.

Chris Bates: Hey Amanda, I'm good to see you again. I think, uh, you know, we're still saying the building issues playing out. Um, there hasn't been any major, um, front page news like mascot and Opal, et cetera, but you know, there's a lot of legislation still going through about what could change. But, you know, do you have any kind of insights on kind of the challenges of like the mascot towers are having and some of the strata, you know, all the owners of those buildings are having, trying to get started to fix the problem and how it's very hard to fix it.

Amanda Farmer: Yes. Uh, look, I am not directly involved as a legal representative with that building or any of the owners who are in that building. So I can today speak as freely and as speculatively, perhaps as the general public wow. Which might be helpful or dangerous. Um, that building has some real problems. And you don't need me to tell you that and you just have to read the news. They have to repair their building. That is a legal obligation. I can't avoid that. Right. We have very clear laws in that respect. It's very well settled in strata law that an owners corporation, a body corporate has a duty to repair and maintain its property and it cannot avoid that GT. There is no excuse for not repairing and maintaining. You can't say, well, we don't have the money right now. We're getting quotes. It's going to take a bit longer. We're getting a second opinion. The owners don't think it's necessary. If it needs to be done, it has to be done and if it's not done, an owner can go and seek an order from the tribunal forcing the owner's corporation to do it.

Amanda Farmer: Wow. So as I understand it from reading the newspaper articles, they are looking at somewhere between a 5 million and $10 million bill to fix this building. They don't have anyone to blame as far as we can see. There has been some talk about whether the neighboring property has caused the damage at development close by, assuming there's no one to blame and no one else to Sue and these owners are going to have to pay the cost of those repairs and they are all going to have to contribute to that bill in accordance with their unit entitlements. So they all contribute, uh, an additional levy over time to meet that bill. And there's no avoiding that.

Chris Bates: It's interesting you say that they have to do it. So you know, you buy a car and you know, the tos is starting to get a bit worn. You know, you might be willing to take the risk, you know, I probably should replace the tires, but you know, I don't have to Joe you do, you know, but this could be, you know, there's not like you don't have to fixing, you know, let's say some dent, you know, it might not be, if it's not safety though, let's say it's like just visually like the building needs work. Is that a liability and obligation or is it, is only if it's,

Amanda Farmer: it is the obligation is to repair and maintain. Right. So yes. So if the paint is peeling and that's a maintenance issue and that has to be done. And if you think about it there, the logic behind the law is that everybody's there as a Kona, they're all sharing in the common spaces. You cannot hold other owners to ransom. A small group, which might be the strata committee or a particular person who's got the day to day responsibilities for the management, cannot hold the others to ransom by saying, no, we're actually not going to do that. And you could see that happening. Uh, and actually it does happen. A lot of the work that I do is acting for owners who are trying to get their building to do work and the building is not getting it done or not doing it properly or doing it on the cheap side rather than doing exactly what's required. Uh, a lot of the litigation that we see before the tribunal is on exactly that point.

Chris Bates: So it's just a maintenance and safety. But let's say it's anything that's going to potentially add value, but it's not those two things. That's when the 75% of unit holders must agree to approve something. Yeah.

Amanda Farmer: Yeah. Really good point. If you are improving or upgrading the common property, then you require a special resolution at a general meeting and the the common way to think of that is, well that's a 75% majority vote. It's not actually phrased that way in the legislation. It's no more than 25% voting against the proposal, calculate it on a unit entitlement basis. So it's not a show of hands. You look at the value of everybody's lot on a unit entitlement basis, so it can be, it sounds like a high threshold, but depending on how many turn up to the meeting, as long as you don't have more than 25% voting against, then that will get through. Oh wow.

Chris Bates: And no shows just not counted in the figures. So if you really want to impact, you've got to get everyone a rock up at the meeting, which could be quite difficult to do.

Amanda Farmer: Absolutely. I say all the time lodge buildings over a hundred lots or maybe even say 40 lots scheme where you've got 10 people turning up to a meeting and six people are voting in favor and making a decision about quite a serious issue. Wow. And I've been present in a room where other owners have said, hang on, only six people voted for that. How, how is that possible that we're making this decision? Well, everybody got the notice of meeting. That's part of our legislation that the notice of meeting has to be issued. There has to be seven clear days notice they've got it in their mailbox or they've got it in their email inbox. They've either read it and said, well, we don't care. Which I think is most likely the case or they haven't read it and they'll complain later when they see the special Livy that's been raised to pay for the work. Wow.

Chris Bates: Let's say you're in a state, let's say you did, DOE, you know, diversify your investments, um, and you go and buy a house in Melbourne or unit a strata townhouse, um, and you can't get there. Can you still be physically present but not present.

Amanda Farmer: You can be present by proxy so you can appoint somebody to be present for you and you do that by filling in a particular form that's stipulated in the legislation. So it's those who are present in person or present by proxy or those who are counted as attending a meeting.

Chris Bates: That proxies that have to be a person there. Do you have to get someone to go for y'all? Can you just be like I'm here but I'm on the phone.

Amanda Farmer: It has to be a person there. However, we now in new South Wales have a provision for electronic meetings. So meetings that can be held by video, by phone, you can have pre-meeting, electronic voting. This all came in with our legislation that started in 2016. Uh, we had a complete revision of our strata schemes management act. But I have to say I don't see very many of those and certainly not for annual general meetings, not for big meetings where there's a lot happening on the agenda. We're still holding those in person. But it is possible to hold electronic meetings. But I think we're, we're waiting for a lot of the software and the techs apology to catch up to that.

Veronica Morgan: It's sort of interesting, isn't it? Because so many owners, well, so many strata managers don't seem to really know that much. I'm an understatement. And then you've got a strata manager, you know, managing a building and you've got an owners corporation, a full of individuals who probably aren't aware of their own obligations as a committee member. Um, they may not realize that they can actually go and get legal advice or go to a tribunal and actually force all the other owners to actually repair and maintain that building. Yep. So there's, there's, it's not just misinformation out there. It's complete and utter lack of information out there, which is alarming. And obviously that's one thing that your podcast seeks to redress, but in fact, that's where I learned a lot. This stuff actually from your podcast. Thank you very much.

Veronica Morgan: Um, so back to the mascot towers ID. Right. So, okay, so they have to then how many, how many apartments in that building? Everyone knows, I think it's about 60. Right? So there's 60 owners, um, split, not equally because you're going to be small apartments, big apartments. I hate to own the penthouse net one. Um, they're going to be told, right? Fundamentally it's going to be at least this much, possibly more. And if you're going to investigate whether the building next door is at fault, there's going to cost involved in investigating that and maybe we can see them. Maybe we can't just add to the bill. Um, some people are first home buyers, you know, just bought their first property. Um, used every cent that they had to get in there. Uh, currently there at the moment. Can they, they can't move in there? No. So they're paying rent somewhere. Um, living in mom and dad. Pretty diabolical. If they can't get the extra money. Okay, so they're going to start going bankrupt? Yes. Presume? Yup.

Chris Bates: Is that their only option? Well,

Amanda Farmer: the building can raise money by living the owners. That's one option. And let's say they have to raise, for argument's sake, let's say they have to raise $10 million to pay for all of this. So we don't know what everybody's different unit entitlements are. So just split it equally. It's about 150 grand H now you can imagine that there would be plenty of people in that building who would not have $150,000 certainly not cash, and nobody, I imagine in their right mind is going to lend on the security of those properties unless you had some kind of significant equity.

Veronica Morgan: and they probably don't have equity in their apartments anymore anyway because let's face it, who could buy it? Who would buy it so they don't have equity? May not have cash.

Chris Bates: Exactly. I mean, that's a good point because reality is you can't sell it because you know, no one's going to buy with cash unless they bought for a really cheap price and there's no bite. And not many people, I've got all cash they want to borrow and all the banks are just blacklisted at the building and they might have some cases, blacklists, suburbs, but you know, yeah, they can't sell it. So that's not even an option. Yeah.

Amanda Farmer: So these people are paying their mortgages. Some of them may be living there. Some of them are investors and they're having to put their tenants up elsewhere and they're hit with this $150,000 levy. They cannot pay it. Now, something that I think most strata owners and maybe even strata managers are not aware of is that that owner who cannot pay the levy can actually be pursued by the owner's corporation to the extent of all of their assets.

Amanda Farmer: So not just to the value of the property or what equity they have in the property, but if this particular owner has other assets, other investment properties, other properties, they can actually, I'll say that again, those are the properties are actually at risk and exposed because it is that particular owner who can be pursued and as you said, Ronica to bankruptcy if that's what the owner's corporation chooses to do to be able to attempt to recover its levy. If that owner is pursued to bankruptcy, then trustee in bankruptcy is going to be appointed. The secured creditor is probably going to be the bank. If they have a mortgage, the bank is going to be paid out first from any assets. But let's remember the only asset is the property and nobody wants to buy it. Yes. So that trusting bankruptcy is sitting there with uh, what may be a, I don't want to say worthless, but cannot pay that cannot pay the mortgage, certainly cannot pay the levy.

Amanda Farmer: And the owners corporation is not a secured creditor. They rank far below. Oh wow. Those who are secure on the title. So this person can't pay their $150,000 levy. The owner's corporation still has to raise $10 million to pay for the repairs or maintenance because that is to divide the $10 million on let's say, let's say a serious circumstance, half of the owners fall over that way. Yeah. You've got $10 million. It has to then be shared between 30 people and they're all now paying a $300,000 yeah. I don't think many strata owners understand that and I accept that this is an extreme situation. It's not one that we've really had to think through as lawyers. And certainly haven't seen cases on this before because usually where there is significant liability like this, there's insurance. It's some kind of might be a civil liability that you're insured for.

Amanda Farmer: It might be some storm damage that you've got building insurance for, but there's no insurance here and there's no original owner to pursue because we're out of the warranty period. It's a really unique and kind of scary situation.

Chris Bates: It's more baby strange in terms of the amount and the numbers, but the defects per se and special levies on strata owners isn't unique though is it? It might just not be this severe is 150 but it's quite common that people are paying special levies for new buildings.

Amanda Farmer: and they sell if they can't afford it.

Veronica Morgan: Yeah. This is a double whammy.

Amanda Farmer: Yep, and these people are not going to, I'm not going to be able to sell I think for the foreseeable future, at least not for an amount that they're going to be able to pay out their mortgage. Yeah.

Chris Bates: The problem is with the selling now is that if that's in the Strada report, the person buying it is factoring that usually, yeah, sure. Strada report. I even know where to start. Report is even if they get this all sorted, but you know, do you think that you know, is there any, how does, okay. Okay. Owner of a property that, is there anything you can potentially keep out of the strata report? Is that possible?

Amanda Farmer: Okay, so the idea of a strata report, is that somebody, it might be your, can I and Sarah or the lawyer that you engage to advise you on the purchase or it might be a professional strata inspector records inspector or might be yourself. You go to the offices of the strata manager if there is one, the place where the books and records are kept and you look through the books and records, the minutes of meetings, all the correspondence, the invoices, the insurances that strata managers should be holding every document including electronic material that has something to do with the management of the owner's corporation for at least the last seven years.

Amanda Farmer: What we're finding, and I think you've spoken about this on the podcast before I said I've certainly spoken about on my podcast, is that the records just aren't complete. Strata managers are not keeping accurate records up to date records when we go and search them, and I do this a lot for clients. We can't find a lot of material that should be there.

Chris Bates: Is there any fines or anything cause that could work? You know there's, that's probably the issue, right? Like if no was going to get in trouble, there's no one really watching what I'm doing. Yeah. You know, and I've got 20 buildings or yep. We didn't even do the meeting like troll that happens. Coleman,

Amanda Farmer: you can seek out an owner can seek an order of the tribunals that the owner's corporation has failed to keep accurate books and records. I've been involved in a couple of those applications on both sides.

Amanda Farmer: And what usually happens is that the owners corporation says, Oh, you were looking for something. What were you looking for? Let us know. And you give an itemized list of what's missing. And then the documents turn up maybe five or six grand in legal fees later for the. Yeah. So they throw their hands up and say, great for you Amanda. But the fact that we have to do that, commence litigation to get them to keep proper records and then they get a slap on the wrist by the tribunal that says, okay, well the records are there now.

Chris Bates: Ah, yeah. So let's say you buy in an older apartment cause you don't want to buy new stuff now because you've, you know, been reading the papers and you've understand that the risk of defects, et cetera, um, and you're going to buy an older apartment and that building isn't very well maintained. You know, it's not too bad. Like it's just looking a bit tired and things like that. Do you see much success in the purchase of those buildings going in and influencing the Strada to tidy it up and spend money on the building if it's been neglected for so long?

Amanda Farmer: Yeah. You're kind of identifying my investment strategy there. If you know what you're doing and you don't mind, they, uh, headache, heartache, additional financial contribution or you understand that it's coming up. I think that can be a very good investment strategy and I know plenty of knowledgeable strata sector stakeholders who do that exactly that. Right. Um, they get the place for a bargain because it's run down and then they use their knowledge and their contacts to improve, make everyone's spending money.

Chris Bates: That building when you're doing that though because no, depending on what it is. Yeah.

Amanda Farmer: Yeah. And I think people, people need to go in with open eyes on exactly that point. You might, you might say, okay, well there's 500 grand's worth of rectification work to happen here. That's great. I'm going to negotiate a reduction in my purchase price then and because I know I'm going to have these special levies coming up.

Amanda Farmer: Great, I've got it covered and then I'm going to live in it. You're not thinking about that day to day strain on your life, that you have to live in a construction zone, that you are going to have to go through that process. If you're on the committee of getting quotes, uh, explaining to other owners why this is happening, uh, supervising the project if you haven't spent the money for an engineer, uh, and it can go on for years and years. It's the same with the defects rectification process owners saying, okay, well yeah there's defects but I've got it for a good price. Yeah, I bought off the plan but I got it for a good price because everybody is avoiding off the plan at the moment. Yep. Um, great. But can you live with this for the next five years?

Veronica Morgan: I'd have to be a really good price. A really good really is the thing though is we have Goodwill. How good am I? Yup. You know, how good are we? How clever we, we say 50 grand on a purchase price. It's like, well, what's the cost of your sanity? And exactly. It's however many years.

Amanda Farmer: And I see clients who come to me and say, Amanda, I want to have this fight or I want to get this work done. I want to do, been saying, I said, Ken, that's fine. This is how much it's going to cost and how long it's going to take. And, and they stick with it and we might be one, two years into litigation. And then they say, Amanda, I can't, it's not worth, this is not worth my sanity, my life. I need to just get back to living as I want to live. And that often means that they sell or they give up. And that's really sad.

Chris Bates: I mean, I had a client Friday night, you know, first time I spoken to her, it was a referral from another client, you know, and I started chatting to her and I said, ah, you know, we just had this apartment and renovated it. And she says, I'm never buying another apartment. And I was like, it was the most like, and I was a really nice apartment in of Collaroy. And, um, the whole experience, she just said the, it was the people in the apartments that made her life hell for two years cause she was going through this renovation. Um, and it was just so bad cause it was in this situation and she was trying to do all the things doing crude, the value of the building and was doing what you're saying. He's looking at what could be needs to be done. Cause she was saying about how can I add value? But then all the other apartment owners made their life hell. Um, and so it just all wasn't worth it.

Veronica Morgan: Yeah. We'll give you a think about if a building's been lifted, go to wreck and ruin a bit, then those people are quite happy to live in. A building is going to wreck and ruin. So you've got to have an uphill battle, don't you? I mean it's not like they go, Oh thanks for coming. We just been waiting for someone to cover jeez. Up.

Amanda Farmer: Yeah definitely. The, the people who are in the community, they attitude that I have that is so important. But it's so hard to predict or to know. So it's hard to say, but there can be a lot of luck in these decisions. I bought into a building recently and I feel that I've been very lucky in that the committee there was welcoming of me and my ideas. It was a little bit Ronica like, Oh my gosh, thank goodness Amanda is here to help us solve some problems.

Amanda Farmer: But it could have very much gone the other way that these people could have said, yeah, Amanda, we hear that we know we have a legal obligation to do a, B and C, but we don't want to do it. And then I could be in litigation with my neighbors. That would be horrible. But I see that in my professional life all the time. Um, so looking at the books and records, and I always say looking at the recent email correspondence, because the things that people put on email never ceases to amaze me. They disclose so much about what they think about their neighbors. Uh, what's going on day to day, realize that if the strata managers copied in, it's going to go on the books and records. Someone's going to read that and maybe the Navy had complained to you about is going to read that or their lawyer is going to read that. So that can give you insight into what the community is like. But sometimes having, having someone who is a professional searcher or a straddle lawyer, look at that for you can help you to gain that insight as well.

Chris Bates: So that's how you knew about Claude going on the line in the Boeing. Uh, okay. A nice apartment in the lower North shore Oak in Mosman or something like that, like a, like a nice brick building with use, etc. Um, and you know, what, what should they, I can just try to get listeners to think about it. Like if they're going out and they're trying to buy and they're going alone, they don't wanna use a buyer's agent, even though I've encouraged them. Um, and they want to go and down the whole finding the strata records. What should they be doing when they're looking at these buildings or how depth and how do they get access to all that information because it's, yeah, you can download the Strada report, but that's not enough. Is it?

Amanda Farmer: Not at all. Very rare. Very rarely the case. First of all, I think that they should be engaging a strata lawyer to assist them with their conveyancing. That's number one. Yes, it's going to be more expensive, but that person who's going to have the understanding of apartments that they're going to pick up things that they might see in the records that others will not. And I can say that quite independently because I do not do conveyancing. So a lawyer who does conveyancing will actually read the report because I find that most conveyances and property lawyers just say no, well I don't read the reports. Yeah. A they should read the report. B, explain it to you and I am in think seat, tell you that look, this report is actually not that comprehensive. I suggest that I go and have a look, it'll be two hours.

Amanda Farmer: It'll cost you a little bit more, but I will be able to see what's missing. I will be able to read, for example, the engineer's report that's on file and understand, okay, well this engineer has identified concrete spalling on the balconies. So if they've identified that, then I know from my experience that with this many lots with concrete spalling to this extent that's going to be at least a million dollar project and that's probably going to take two, two years. Even though this engineer said, Oh, it's a six month job. So are you prepared for that? Now you prepared that the million dollars will probably become 1.3 so as strata lawyers knowing the other side of the purchase, we can provide that additional guidance. You should be looking for a 10 year capital works fund forecast. That's the 10 year plan that every building must have by law in place that says this is the repair and maintenance work that we're going to do over the next 10 years and this is how much it's estimated to cost.

Amanda Farmer: So professional has come in, walked around the building and said this is how much you're going to spend over the next 10 years. So this is what your levies should be for the next 10 years. And that will highlight things. Even in a perfectly well-maintained building. It'll highlight things like, well we're going to be repainting the whole building in three years time. We're going to be replacing the timber windows with Ella minium in five years time. So those major things that are coming up as a purchaser, we're going to be doing the roof, but the waterproof membrane hasn't been known for 25 years. So that's ready to go. Oh I'm buying a top floor apartment and the waterproof membrane has been leaking. That's interesting. That's something that's going to have to be addressed on that.

Amanda Farmer: So the capital works fund forecast, which used to be the seeking fund forecast is varying degrees of um, value in those. Right. Cause you know, from what I understand, there's those that just basically press a button, say, well for a building like that you would expect, you know, it's basically all computer generated versus ones actually had a quantity surveyor go out to the property and actually look at what this property needs and we'll, you know, we'll likely need and there's quite a big difference. But they're both, you can tick the box to say they're both there.

Amanda Farmer: Very true. Um, there are companies who can do them quite quickly and cheaply using templates and then tick the box to say yes, that's been done. The other thing to bear in mind is that our legislation says that the owner's corporation must follow the plan as far as reasonably practicable. Yes. And don't actually have to follow the plan. Uh, and that's been a concern for us lawyers when our new legislation came in and it, and it said that, I'm sure you can have a plan, but if we're ever going to Sue an owner's corporation for not following that, um, where we haven't seen this play out yet, but we're a little bit concerned about how that legislation is going to be offline.

Veronica Morgan: I often come across, you know, where the strata manager says, Oh, well they are the owners of, you know, they've owned that building for a long time and they know the building. They know it. Well that's good. This doesn't look like a has been in there checking it out at all. You know, it's good that they know it. Um, w we came across a townhouse recently where they, what did they not do? Or they didn't have an annual fire, uh, annual fire service statement. Yeah. They said, we don't need one for this type of building. Oh. And I'm like, Whoa, yes. It sound right. Anyone of you qualified in this area, you know, and, and so you've got a an owners corporation that have decided that they know better than what is legislated. So then you go, that's, that's nice, isn't it? Yeah.

Amanda Farmer: me is that they used up buildings that are managed by professional strata managers. And I started to say this when I started the podcast and for many years I'd been working with owners and buildings who, who were managed by strategy, by, by good qualified strata managers who understood the importance of getting lawyers involved. So these were the people that I was dealing with. They knew if there was a problem, they couldn't handle, get the lawyer involved. But when I started the podcast, I started communicating more and more with owners who are either self-managed or had strata managers who had no idea. And I didn't realize until then the extent of that alone. And I get sent notices of meeting that just do not comply with the basics of the legislation. So that's a really basic thing for a strata manager to have to make certain disclosures in a notice of meeting. And I'm looking at this meeting notice it says we're going to discuss most emotion one, two, and three and that's it.

Amanda Farmer: I think, well that's just obviously noncompliant to anybody and that's the least of the problem. And then you've got strata managers saying, Oh no, you don't need a capital works fund plan, or you don't need an annual fire safety statement. These people are getting paid do what?

Veronica Morgan: Or I think in this particular case, the strata manager, whether they agreed or disagreed, I think they were bullied by the owners. So then you get that that happening. You do. And they are concerned to secure the renewal of their contract. We moved to maximum three year terms when we got our new legislation, and I think since then we've been seeing a change in behavior for some strata management companies where they're very concerned to make sure that their contract is renewed three years.

Chris Bates: I saw yesterday a three they a reelection, so we might as well go a bit like this year and

Veronica Morgan: this is a big elephant, isn't it? So that the maximum three turns supposedly put in to protect consumers?

Amanda Farmer: Supposedly, yes. And to give, give them the option to choose a new manager. We used to have automatic rollovers. We'd have 10 year contracts. Um, the price would just keep increasing by 5% every year. And I said, well, we're Jack of that, let's do something about it. Okay. Have your three year terms. Um, but now we have strata managers who um, some strata managers who are taking instructions may be from one particular committee member instead of the committee as a whole because they feel that that committee member is going to be the one who's going to encourage the others to renew the contract. Uh, and they have to feel, they have to prove themselves in a shorter period of time. So they might take some shortcuts and sound and we don't need a committee meeting. Yeah, that's fine. I'll do that for you. I'm really concerning for IO and other owners see this happening so well. How come he gets his windows fixed and minus still leaking and they have to come to me by my alley, right. To get something done that they are legally entitled to.

Chris Bates: I think it's been a, a problem with new buildings from memory that like some developers have also go straight to companies and then they basically employing their own strata company and then that strata companies then signed up for 10 years on a higher rate then with above inflation increases. And so you buy the building but you don't know you're buying a really expensive Strada manager that said locked in for 10 years that has the interests aligned to the developer and not you. And have you used kind of saying that, play it out where the conflicts are just way too?

Amanda Farmer: That was definitely more prevalent a number of years ago. Our new legislation has attempted to address that, uh, by saying persons who are connected to the developer, um, shouldn't have those contracts and that the contract for the contract, the first contract with the strata manager should only be a one year contract. So a new building will only ever have a one year contract. And then they have, uh, at the next AGM the option to then engage a strata manager for three years. So if they're not happy with that, say developer chosen, cause they might not be connected to the developer, but it would certainly be a strata manager chosen by the developer in the first year. If they're not happy, then they can decide to change after that first year. Building managers is a another longterm contract care tech. And we've had a number of court cases about 25 year, uh, caretaker contracts in new South Wales.

Amanda Farmer: Um, the other thing that's new is embedded network contracts. So, um, this is something that's just emerging and, and I've started to give a little bit advice, little bit of advice to buildings on this, um, where the developer is, enters into an agreement with an energy provider and they then purchase the energy home from the wholesaler and then on sell it to the lot owners. And those can be longterm contracts that people at the developer sells the apartment on, the promise that, Oh, but your, your electricity is going to be really cheap because we've got this particular contract. And then over time it just skyrockets and they just can't get out of that contract. Um, that's something that we're just starting to talk about in the sector about the, the fairness and the legality of those contracts. So you buying an obligation you aren't aware of. Yup.

Chris Bates: So this whole strata board is that, you know, even if you, um, you know, you go and do your due diligence and you start to safe smoke, I guess, um, you know, you should really run, but a lot of people don't run. They just go and buy the building and then they assume that the laws are going to protect them. Um, because they can influence, you know, for example, if you get in the building and we need these maintenance done and then you go to the strata and you say, we need to fix all these things, it's very hard then to actually get, cause people will sit on the fence, then years go by and then you get give up and you leave. So do you think that the law is actually strong enough to protect people or you know, people really just shouldn't buy in those buildings because they can't rely on the Lord to save them?

Amanda Farmer: Oh, that's a really hard question. Um, the law is definitely there. There are avenues for people to address, um, and underperforming owner's corporation, but they're not easy avenues and they're expensive. Um, our tribunal says we don't, uh, we're consumer friendly. We don't necessarily want lawyers in the tribunal. You should all self represent, but this is complex. These laws are complex and that's the tension I think between this is somebody's life. It's their every day. It's what they're living and breathing. But there's this whole layer of incredibly complex, um, legislation that overlays all of that that they're supposed to understand or to navigate. And our tribunal says you're supposed to do it alone. And if you do engage a lawyer, the tribunal also says, well that's nice, but we're a no costs jurisdiction. So it's very unlikely that even if you're successful in getting an order to force the building to do what it always should have done.

Amanda Farmer: And so you don't get a cost order in your favor. Your, your having to pay your 20 grand out of your own pocket for your lawyer to run that case. And that's what I tell my clients. Don't assume that you're going to get this money back. I can get you the result, but it's, you're going to be out of pocket for it. Having said all of that, I'm working with probably the worst 2% of buildings at that level and there are tens of thousands of functioning strata buildings in new South Wales and most of them are doing pretty well. So I don't want to scare Monga here because my everyday experiences is problems and difficulty. Um, there are many, many buildings that are functioning just fine. They're compliant, they've got good managers, they've got money, they're well-maintained. Um, I invest strata myself. I wouldn't talk anybody out of investing in strata for that just for that reason. Yeah.

Chris Bates: just say the smoke, but go look at it. But it doesn't mean you shouldn't. Yeah.

Amanda Farmer: And just be, just be armed. No where you can get information from. Know who you can get it from. Understand that there is this whole world behind these buildings that may impact you. It may not, uh, you may have to look at the strata legislation at some point, you may have to do some Googling about what the building's responsibility is to repair and maintain. You may not, uh, but it does have that added layer that you wouldn't otherwise have in a freestanding home.

Veronica Morgan: Yeah. And I think it is important that you don't wishful think it away. You know, I think that, you know, because if you do get caught up in it in a building that needs this issue, it's not solely your responsibility to fix it. So therefore you've got a lobby and you've got to negotiate and maybe litigate and all that sort of stuff. And it just adds years and years and years. So the whole drama of it. What a nightmare. Listen, your own home, you can, I mean it might, it's going to cost you, but like it's at your discretion.

Chris Bates: So the elephant in the room is 100% for you.

Veronica Morgan: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions for.

Chris Bates: what we would love for you to do is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica Morgan: Give us a review on iTunes or five-star. Please will be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Chris Bates: you know, right now there is still hope out there for a lot of first home buyers in Sydney, Melbourne weather, you know, entering the market and they can get into that house, right? They don't have to buy a townhouse or an apartment. Um, cause there's still pockets that are still affordable to them in areas that they want to live. Which by in say 2016, 17 like that was pretty much gone. Like a lot of, pretty much going. Now it's pretty much like it's not far off. Like it's, you know, if we get back to 2017 prices again, um, you know, which is, you know, maybe.

Veronica Morgan: we're beyond it in some pockets.

Chris Bates: Yeah, I agree. So like it's not, and so then we're going to a lot of, and it's already happening. I think that we're, you know, a lot of first time buyers and young families are going, well we have the, our only option of living in these cities is we can't afford restating and we have to get an apartment or strata. So the option of just going down all, we'll just buy a house isn't an option. So they've really got to get scale skilled up in understanding strata because they go to their parents. Their parents have never been strata. They're friends, you know what I mean? That they just, there's so much. They just have to know this information. They just don't know where to go.

Veronica Morgan: I'm interested though, you know, there's townhouses and there's apartments and there's obviously there's apartments in these apartments. You know, there's, there's your red brick three story walk up, which is fairly self contained and pretty easy to, to, to navigate, um, your townhouses where you've effectively got your own lot, everyone's got their own a lot, but you've got your own big bit of ground and you're not necessarily sharing roof space or, or floors or that sort of thing. You might just be sharing walls. Um, maybe at a con property, sometimes just a driveway can be quite simple. And then you've got, you know, really complex, multi multiple multi-use buildings at the far end of the spectrum. And I remember when we interviewed Rena, Reena van Aalst, um, back in the 30s, I think, and we talked about that. We touched on the complexity of being in one of those buildings as well. But from your, from your experience as a strata lawyer dealing with the one or 2% of the terrible buildings or where buildings where terrible things happen or go wrong, do you come across townhouses very often in that I do, yes.

Amanda Farmer: Um, you mentioned there about townhouses, maybe only sharing part of a wool and kind of having your own backyard. Um, it all depends on the strata plan. Of course when done a plan says, but quite often those townhouses still the roof is still common property. All of your walls are your door. Uh, you, you may have the use of the air space in your front and back yards, but the ground itself is common property offenses. Uh, those arrangements can sometimes be more complicated because what you see is not necessarily what you get. It's not necessarily what might think it is. And when we look at the plan, we say, Oh, did you realize you know, the, the driveway is actually in common or you're actually responsible for this part but you're not responsible for the other. Um, so I think those developments in particular, um, people need to be getting specific advice on what does the plan show, what has the agent told me I'm buying?

Amanda Farmer: And go and see your, your lawyer conveyance that to make very clear what you are actually buying and may not be the same thing. Oh yes. Yeah. But I have to say some of the most hard fought vicious disputes I see are in the smallest buildings. Really. So a two lot scheme is very difficult because you can't make any decisions if one person doesn't agree you need that majority to make everyday decisions that,

Veronica Morgan: that she important. Interesting. Because say in like art council, I remember some years back they changed the minimum lot size and so there's a whole bunch of say 300 square meter blocks of land that got subdivided into two 150 square meter blocks of land. But because it was sub 200 per lot, the council Dame that well there has to be strata. So you've got this, there's quite a lot of, of two, two lot strata schemes and yeah, there's some implications there too because of course you've got to ensure the building is one you do. Um, then there's obviously you've got maintenance. I mean quite often they just agree to maintain each their own lot, but what needs to happen in those cases? Yeah. I work with a number of buildings opposite to

Amanda Farmer: Leichhardt council. I think Randwick council for many years would not approve these small developments as strata and they proved them as company title. Oh even worse. Well, interesting that that has now been a change there and there's a number of companies to lock company titles that are converting to strata. Yeah, so that's something that I get involved in and I was involved in one recently where I acted for the lot owner, so not acting for the company, active for the lot owner who came to me and said, Amanda, what is all this conversion about? My neighbor wants to go where he says it's going to add value to our property. I'm, I'm been here for 10 years. I'm going to be kids going to be here for another 25 years. I don't really care about selling. Is this going to cost me money? What does all this mean?

Amanda Farmer: And I explained the process to them and said, look, it's, it's basically a paper process. You're filling in forms, you're signing minutes of company meetings, you making sure your constitution allows you to do it. Of course things get lodged with the council with land registry services, but as a brand new Stratus game, you need to develop a set of bylaws. And I said this is a really good opportunity actually to set the scheme up the way that you want it. And it's a rare opportunity. And what I suggest two to lots of games is that wherever you can take responsibility for your own house, for your own side of the property, because the strata plan will be drawn in such a way that your external walls, you're stealing, you're dividing internal wall will all be common property, your waterproofing, your bathroom waterproofing, even though your bathrooms might be nowhere near each other, your bathroom waterproofing will be common property.

Amanda Farmer: Wow. So you will be responsible for maintaining your neighbor's bathroom waterproof membrane, and you think, well that's good. It's not like they're above me. That's not going to affect me if it leaks. It's on the other side of the building. But what you can do is pass a bylaw that says that each owner is responsible for the structure of their own side. And there's only very limited things that we share. And in my view that will go some way to avoiding dispute down the track and also making sure that you are living as separately together as you can.

Chris Bates: Positives of that. But then there's potentially negatives. Like, yes, he's the, uh, let's say that, you know, you do have a great neighbor, they take care of it. Why don't, if they don't, you know, can you then force them to really do it? Cause, you know, the last thing I want to do is sell a semi and the Niva is like, you know, roof's got a hole in it and that's, I gotta find

Amanda Farmer: the, the neighbor. Yeah. Do sometimes. Yeah. So you can put the obligation on them in the bylaw to actually do the work. You can also say that anything that impacts the external appearance of the building has to be a joint decision. So we don't want a purple house on a Brown house, you know, cause that just looks weird. Um, so you can really, with the help of someone who knows what they're doing, draft a regime that works and covers off most of the foreseeable issues.

Veronica Morgan: And it's, look, when I was a sales agent and so a number of those actually helped some of our clients buy them as well. But back when I was a sales agent, I remembered just being told by a lawyer once, ah, the only thing you need to worry about is, is cheering the insurance. And that's what I was tell buyers cause that's what I was told. That lawyer clearly didn't know anymore. Um, and so there's a lot of lack of, it was a lack of info, a lot of lack of information. Does it make sense? There's a lot of lack of information, a lack of information out there about this. But so it's good to talk about.

Chris Bates: So one thing I don't know about, cause it's what we don't know that hurts us is this unlimited liability, which apparently you guys were talking about.

Amanda Farmer: Yeah. So that's that concept where, uh, I mean if we think about from a corporate law perspective, we have, uh, in Australia, three types of companies, we have limited liability companies and that's what most of us would understand. That's where we're only exposed to the value of our investments. So it's only the money we've put in our shares or our personal guarantee. If that company gets sued, then we, our shareholders are only exposed to the value of that investment. We also have no liability companies. Apparently these are um, generally mining companies. So mining, exploration, oil Explorer, exploration, high risk speculative companies, quite rare. Uh, and then we have unlimited liability where you are actually exposed to the extent of your own assets. Even if you've only put in five bucks or you've only put in 500,000 for your property. And owner's corporations are unlimited liability corporations.

Amanda Farmer: And the reason that they are is because the building needs to be able to raise levies to meet its legal obligations. So it's not expressing the legislation that they are unlimited liability, but it does say owner's corporation must repair and maintain owners must pay levies. So the way that the owners corporation repairs and maintains is to pay levies. And if there is somebody who is owed money by the owner's corporation, what we do is we don't actually wind up the owners corporation. Like you'd wind up a company if a company can't pay its debts, that person who's owned money, who we call a creditor can actually apply to the tribunal for the appointment of a compulsory managing agent. So a strata manager comes in like an administrator with all the powers of the owner's corporation, and that manager can then raise levies without the need for a meeting, without the need to discuss with the owners against the owner's wishes in order to pay that debt and to pay that creditor. So that's another reason why it's not a normal corporation. We don't have the winding up corporations act procedure. We have the compulsory manager procedure.

Veronica Morgan: There's no way to shirk your responsibility.

Chris Bates: So the risk here is if you buy a, you know what would be wrong is you buy a Stratta building and it's got creditors or it might have creditors that are on the books. That work's happening now, you don't know about that can be, and these aren't really factored into the sinking fund and there's not enough money there. But then you buy into the building and then bang, you hit with this and they'll say, well you owe 500 grand to the window company and that wasn't on the books. Um, and then that sort of special levy, that wasn't even in the strategy.

Amanda Farmer: That can absolutely happen. Absolutely. You need to be looking, going back to the strata records inspection, you need to be looking to see if there's any litigation on foot. That's a big hopefully, you know that goes without saying, but that is a big red flag. If there is litigation, whether the owner's corporation is suing someone, you're asking the question, well who are they suing and why? Or whether the owner's corporation is being sued. Well, what are the prospects of success on that litigation? What are the lawyers saying? What are the lawyers fees? Are we going to get those fees back? Are we insured? What? What is the liability of the owner's corporation? Cause it's not good enough to say, Oh well the owner's corporation takes the liability at the end of the day, you, the owner, it falls to you because you've got to contribute the money.

Chris Bates: The legal thing is, is, uh, it's quite humorous. Um, you know, I think that when you go into disputes with, um, uh, with, uh, legal issues, you just assume if you've got a good case and it, you win the case, uh, and you're done nothing wrong. That you could always put those legal costs on the person fighting you and then they'll pay the legal costs. But from my understanding, that very rarely happens. You just enter in it, you throw the money to fight your case, but you could really kiss those legal fees goodbye. Most of the time.

Amanda Farmer: Yeah. In, in a court, we usually say costs follow the event. So if you win, then you get your costs paid. Even that, however, you never get dollar for dollar costs. I shouldn't say never. There's unique circumstances, but you should assume even if you're successful, you might get 50 or 70% of your costs. So you're still going to be out of pocket. Even that's in a court with good cost, what I would call good cost rules in the tribunal because it's supposed to be consumer friendly because somebody shouldn't be punished because they don't have a lawyer and their opponent does have a lawyer. The tribunal says we are a no cost jurisdiction. You will only get a cost order if there are special circumstances and special circumstances, uh, situations where someone never should have brought the application. They haven't complied with the directions of the tribunal. They had no evidence, uh, they have a completely misconceived vexatious claim. You're just wasting their time, wasting time obviously. But then you've got to argue that point. You've got to argue for a cost order and you need somebody who understands the legislation to argue for that.

Chris Bates: So as an example, you buy this old building you think you are, you know the rules. You go in there and you start, you know, you get your lawyer to defend all your rules and it gets dragged out. I have a spice of many years and then it gets the final outcome. You get what you want, everyone's got this special levy and you gonna pay it. But your legal, let's say not yours, but some legal fees have accrued, there's very unlikely going to get any of that money back. You as an owner of that apartments basically saying goodbye to that money. Yeah. Is that

Amanda Farmer: in the rest, in rare circumstances you'll get some money back. But I always tell my clients yet, don't assume you're going to get anything to say yes. Little protection you can rely on. Yeah. Um,

Veronica Morgan: what do you, what about Opal towers? Okay. Cause that's the situation where there's insurance. Yes, there's litigation and there's people to litigate and or organize. Oh the litigating gets the state government moment, aren't they? Um, so what happens in that sort of scenario? And once again, you put your life on hold for how many years and there's also going to be devaluations of property. And even if you get out of it the other end and half unscathed, you know, there's, there's certainly no easy path for any owner there. But what's, what's going to happen in that scenario.

Amanda Farmer: Yeah. So that scenario was different to mascot in that they are a new build. They build her and developer was still around and ask still around and they are word on the street about Opal is that that builder and developer has been very forthcoming in terms of paying to fix these problems, putting their hand up and saying whatever it takes, we will do it.

Amanda Farmer: Uh, you say that there's been an inquiry, there's been reports, uh, there's been a, I think a certifier's been fined but the builder has some, we've got a good reputation. We're going to make sure that this is all looked after. Um, yes, there is a class action that some of the owners are involved in against Sydney Olympic park authority. Um, that's the government government agency who were the original owners of the land. Um, so the of the commentary around that scenario is actually the Opal. The Opal owners are the lucky ones. If you can believe that. Um, yes, they all had to leave and they've got this problem but they don't have to pay for the fix because the building it's under, it's within that six year warranty. And the builder is going to fix that.

Chris Bates: The reality is though, fortunately they might not pay out their own pocket, but they will sell high when they sell that property one day. Yeah. It's uh, it's pretty well-publicized at that pitting and so a lot of investors will be like, well, even if it's fixed, I don't want to buy.

Veronica Morgan: There's another one that's only finished because it was three or four or something or something. The next one's called.

Amanda Farmer: three or four. We know about, and I know there are buildings committee members, lawyers out there who say, if I was in that building or if this was my building, I'd be keeping it very, very quiet and this is,

Veronica Morgan: yeah. This goes back to a question that you are still here, isn't it? Because the thing is that, yeah, there's a bit of a conspiracy of silence in some buildings, isn't there? I mean we look at, I put towels, let's face it, the one next door goes up. You're going to be looking at them going wrong. I would feel pretty nervous if I had bought off the plan in the next one regardless of whether it's going to start cracking. It's more about, well how is my value tarnished because of the one next door or, so that's sort of an issue there but, but there are buildings and we've heard many anecdotal examples of buildings where they've sort of agreed to keep things out of the minutes, agreed to discuss everything off the record. Um, if you come across that,

Amanda Farmer: yeah, that's a real problem. Uh, and certainly no strata manager or strata lawyer who's aware of that happening would or should be advising buildings to do that. It should be making very clear that uh, accurate records need to be kept. Nothing can be withheld from the records. Uh, and that does pose a problem. If people are doing their inspections thoroughly, engaging people to do it and not in the information just isn't there, then they can't make an informed decision. Um, again, I'd say that comes down to having a professional experience person look at the records. Cause I'd like to think that I'd be pretty on top of if something was missing, it would stand out.

Chris Bates: Yeah. Losing their theirs. But the building does have to be strata managed, managed. Yes. If you are buying in a self managed building, you would like to think that there's a definite warning signs when you look at self-management records. Yeah. The shoe-box yeah. That'd be out there and people will be buying them and will be buying them thinking, yeah, that all looks good or interested build down there. And number three, he knows everything. Yeah. He looks after us non disclosure agreements and things like that being used as um, ways to silence X owners, X owners, people who have moved down information about the building that we don't want to be publicly information

Amanda Farmer: giving me ideas. theories. I've never heard of that happening. Uh, I have heard of disgruntled owners, whether they're former owners or current or their tenants, um, using technology, you know, Facebook and websites and blogs to cause problems. Um, I always say in response to that we're all in this fight, fire with firearms, set up a website, set up a blog and, and deliver what the real information is. Um, I think yeah, you might have to do that. Um, but we do have to comply with the law. We have to comply with the strata schemes management act. So certainly a building or a committee couldn't agree amongst themselves, for example, to keep things confidential, keep things out of the records, cause that would be a breach of the act. The only time where an owner may find that they cannot and legally cannot access records is where the records are legally privileged.

Amanda Farmer: So it is advice that's come from a lawyer acting for the owner's corporation. And that advice can be the subject of privilege and therefore withheld, but only withheld from the owner who's on the other side of the litigation. Right. So if we're suing someone because they haven't paid their levies, then I've given advice to the owner's corporation about this is how you do it. Then that person in lot three who hasn't paid their levies and we're suing, they can't see my advice. But everyone else in the building can see my advice because they are part of the owners corporation. So they're all jointly paying my fees so they can all see my advice. And that's a really, um, important point to make because so many buildings and managers don't understand that and overlook it and say, Oh, well that's privileged. That goes in the privilege file.

Amanda Farmer: So one can say it right. So it's something to be aware of when you're searching records to say, well, hang on, I can see in the financials that you just paid $20,000 to a lawyer. What's that for? Oh no, that's litigation. That's privileged. Well, hang on. It doesn't involve the lot that I'm about to purchase. Does it involve lot three? Oh no, it involves lot 14. Well then I can see it because it's not privileged as against me is privileged as against lot 14 and we've got cases on that. You got to know what you don't know. Yeah, it's a Mickey Mickey woad

Chris Bates: every week we hear incredible stories of the dumb things, property buyers do, dumb things that end up costing a whole lot of money and or a whole lot of stress mistakes that can be avoided. Please. Amanda, can you give us an example of a property Dumbo? We can all learn what not to do from these stories?

Amanda Farmer: I do, and I think we might've touched on it a little bit earlier, but um, I was recently helping a building who had decided that they wanted to pay out their strata loan, so they'd borrowed, I think it started at about a million dollars to do some major rectification works. They had been making the minimum repayments and they got it down to about 500,000 and then a group of owners said, you know what, we just want to clear the line. We just want to pay it out. So in order to do that, we have to go to a general meeting, pass a resolution to pay the loan. Um, they, the committee did some research about the options. We could pay half the loan now and half loan next year. We could pay the whole loan out. Uh, sent out the notice of general meeting. The options were on the agenda.

Amanda Farmer: I recommended that they do a very clear covering letter explaining this is what's going to happen at this meeting. We really recommend that all owners attend this meeting because this is an important decision. Here's a schedule of what your levies might look like if we decide to pay out the loan. So someone in a two bedrooms having to pay $7,000, someone in a three bedrooms having to pay $10,000 over to special levies. So significant. Um, the meeting happened, it's about a 40 lot scheme. I think they had about 10 people turn up in the room and this is the example of where six people made the decision to pay out this loan. And I won the committee and I said, okay, that's fine. When the levy notices go out in a month's time, just put your flag jacket on and just be prepared because you're going to get emails, you'd get your strata manager is going to get phone calls. What is this? Why am I being billed $7,000 how did you make this decision? When did you make this decision? So the properties on both for me is that person who doesn't read the notice of meeting doesn't, uh, attend the meeting and then later complains about the decision that's been made by what really ends up being a minority because they are completely disengaged until it comes time to pay some money. Is the minority, the ones that are interested? Yeah. So they are the ones that turn up. Yep.

Chris Bates: Sorry, that's the charge. Then he said six of the 10 or so. So the four said notes that shouldn't that then been

Amanda Farmer: that 40% lot entitlement. They say it's an ordinary resolution. Yeah. So just a majority can make that decision. Didn't have to be a special resolution. Yeah.

Chris Bates: Wow. So even then, so that's like, you know, yeah. You'd think that it would be 75% so there's certain resolutions don't you need 50% yeah, most, well, and that's not much, you know, levies a 50 ordinary resolution. So 51% you know, and on, on a show of hands as well, unless somebody calls for a, it's not about the, not about unit entitled on an ordinary resolution, someone can call for a poll and then it's on a unit entitlement, which may or may not change the voting. But these are serious decisions. There's only seven days. I have to give notice. Seven clear days. Yep. So if you're on holidays and you don't check your strata, they all going to organize a special meeting.

Chris Bates: Yep. And you're on holiday for two weeks and all he needs that. Yep. Good. Yeah. You could be out of the loop at home with a $10,000 bill. That'll be in a box. Yeah, that's true.

Amanda Farmer: Just being aware that that's a possibility is a step in the right direction. Know.

Chris Bates: Especially cause if you do get it in the mail or like, you know, I don't know about you. Go out and check my mail every seven days. Um, and so, you know, like it's very easy, you could even miss the seven day window. So yeah, learning there for a lot of strata owners is, you know, don't delay opening these letters cause.

Amanda Farmer: I'll get, just give your strata manager your email address as an address for service that's often the way and open your.

Veronica Morgan: emails pretty wordy and they're a little bit boring and all that sort of stuff. But you know, they've, they're pretty important. Yes. It's interesting though because, um, you do find in some buildings you get these really very, very interested in very, very involved and very, very motivated people and they're a little gang of them and some, you know, and so they actually get their way because they know how to game it and, and they, they, you know, a lot of them are retired.

Amanda Farmer: Yes. And other residents tried to infiltrate that group and try to get themselves on the committee and I find that hard to do. Um, yeah, definitely. That happens. That's tricky to navigate.

Chris Bates: those people though, you know, if you're an owner in those buildings, especially if they're doing things by the book and um, you know, they're trying to take you here. Yes, they might be, you have to keep putting money in your pocket. But yeah, at least you know your assets.

Veronica Morgan: Okay. Somebody who's doing something true. Although I heard of one building where they, they deliberately did not issue prior to these few times where they, they kept the straddle of is really, really low. Um, and they just rise a special levy for whatever they decided to do. And so then it was like all we decided that we wanted to sell it hit the pool. And so okay, we just raise the levy and I don't even swim.

Amanda Farmer: And that's been part of the policy behind the capital works fund forecast because a lot of buildings were saying, why would we want money sitting in our capital works fund when we could have it sitting against our mortgages or invested another way? Exactly. So they didn't, they didn't, didn't have adequate levies and they'd say, well, we'll just raise a special levy when we, when we need it. You know, new people buying into the building, young families and they, they can't handle that, those surprises. No.

Veronica Morgan: And they, and they're also paying for the sins of the fathers in the way because, you know, it's slightly the same bill at the same townhouse complex. He says, no, we don't need an annual fire statement. Um, they also said, well, you know, we don't need, we'd rather have the money sitting on our, um, there's, I don't follow the capital works fund forecast and we'd rather have the money sitting on our mortgages. And I'm like, well, that's fine. What about the next buyer that comes in? And if you had actually been putting aside, putting aside, putting aside this owner would have made a contribution for all the things that were intended that they'd had the benefit of and now they get to leave scot-free and this person actually will have to backdate effectively and pay a premium over on the top of the purchase price because there's no investment in that.

Chris Bates: Yup. And the big things are like, what are they like, you know, from your experience, you've seen big, big ticket levees like concrete in older buildings, concrete cancer. Absolutely.

Amanda Farmer: Like rust in the water, roof membranes, windows, windows. Yep. Any other big ones you could litigation litigation disputes and people would say, yeah, I've seen, I'm saying special ed. This is 300 grand to pay lawyers fees. I mean that's just, yeah, and having to explain, I mean, explaining to the owners that you need to raise a hundred grand for a new waterproof membrane is one thing. Explaining where raising 300 grand to pay a lawyer to fight with lot for about, they're a retail shop that's opening and we don't want them to have outdoor settings. So we're all in the land and environment court. And honestly, hang on a sec, I don't, why am I paying 20 grand towards it doesn't really matter. Do I care? Do I actually like the guy down there? I just makes good coffee. So you end up with those kind of, that's a good point as well.

Chris Bates: Like, you know, we'll see commercial mixed with residential. Like you're buying a completely different beast. Don't you show challenges with that? So yeah. Um, yeah. So it's, it's, you know, it's not just, you know, the roof, it's, there's so many other elements you've got to look at. the fourth layer of government. That's it. Yup. Apes is busy.

Veronica Morgan: Oh man. Thank you so much for coming back. Oh my pleasure. Unlimited liability thing. Uh, as soon as my ears pricked up when you mentioned that to me and I'm so glad you've come and chaired and explained it really what it is you're buying into when you're buying strata. I mean, you know, the liabilities that, um, or the obligations that an individual owner has, you know, worst case scenario, but Hey, it could happen.

Amanda Farmer: Yes. Being aware that it could happen is the first step. Yeah, yeah.

Chris Bates: A few hundred dollars or $500 or whatever it is. Upfront due diligence and if you have to go through that and you find out something that you didn't really want to know cause you didn't really want to know what you want to buy the apartment, that's okay. You'll have to just wait and find another one that, you know, deal with the pain today, not tomorrow. Yep. Thank you very much. My pleasure. We want to make you a bit of elephant rider and this week's elephant rider training is,

Veronica Morgan: we're following on from some of the conversations we had with Amanda just now around a due diligence and Strada reports and the like. And we sort of touched on it but we didn't talk about it in great depth. And that is when you do your due diligence before buying a property. It doesn't have to be strata, it could be a house. We had done a building and pest inspection, um, and when something comes back that I guess doesn't really answer the questions you should be asking or it actually raises an area of doubt, uh, or it's, you know, or you don't understand it, there's another one sunk cost. You know, it's a sunk cost bias is, is a problem for property buyers because you spend your $300 on a report and you feel like you committed to buying the property because you've spent the money doing the due diligence. And I just want a little bit of a reframe because it happens to be building and pest inspections as well. I've, well I've paid now and even though I know it's got termites, I might knock 10 grand off the price for argument's sake, but, but I paid for a building inspection so I should still buy it.

Veronica Morgan: The reason I just want to reframe a bit, the reason that we spend the money and invest the money on these building inspections or strata reports is because we want to find out if there's a reason why we shouldn't buy the property. And so we have to be very aware of this sunk cost bias that we have to think that just because we spent that money, that money is gone, that money is gone. And if we are wise, we will spend that money that is gone wisely. I E listen to whatever it is that we've found out, uh, when we've actually gone and got that information. So just be mindful that it is a bias that we all are susceptible to. It's the elephant, once again, we talked about it back in episode one with Simon Russell about, um, various biases that we are impacted and influenced by and sunk costs was one of them. And it does happen when you're doing due diligence on property buying.

Veronica Morgan: Please join us for our next episode when we talk about bill Tarant. What is it? Is it a solution to housing affordability? Is it a way for institutions to invest in residential property? We'll get to find out because we're interviewing Mirvac groups, general manager of build, Trent, Adam Hearst. It's a very interesting conversation because we get into taxation, we get into government, uh, hurdles and incentives. And, um, what the future for this sector may look like if it is allowed to get off the ground in this country. Please join us.

Chris Bates: Don't forget we're on all the social channels. We're on Facebook, we're on LinkedIn, rod, Twitter,

Veronica Morgan: or you can connect with us on the elephant in the room.com today. You, the links are all there for you. Please connect and send us a message we'd love to hear from you.

Chris Bates: The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John risk editorial by Gordie Fletcher. Until next week, don't be a Dumbo

Veronica Morgan: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.