How to inspect an apartment?

[Sunder]

A mate and I have been looking at a number of apartments in South West Sydney that are being sold finished, but directly from the developer. The price of them have come down substantially in the last few months, and I think they have the right yield and potential for capital growth now.

However, a friend who has lived in that area for a decade, said that her local news paper, indicated that several of the newish apartment blocks have severe structural issues, and that the developers are shirking responsibility for rectifying them. So I have a few questions:

1. How do you inspect an apartment?

2. I've heard that some developers retain control of the body corporate, so that issues are voted as "maintenance" rather than "structural fault" so that the warranty doesn't apply. How do you check if this has happened?

3. Is there anything else I should be aware of, knowing these issues?

 

[JoannaK]

A mate and I have been looking at a number of apartments in South West Sydney that are being sold finished, but directly from the developer. The price of them have come down substantially in the last few months, and I think they have the right yield and potential for capital growth now.

However, a friend who has lived in that area for a decade, said that her local news paper, indicated that several of the newish apartment blocks have severe structural issues, and that the developers are shirking responsibility for rectifying them. So I have a few questions:

1. How do you inspect an apartment?

It is the builder that is responsible for the defects, not the developer. The builder must provide the developer with Home Owners Warranty insurance, which is then passed to the purchaser (unless it's a high rise building).

The developer must also provide a Final Certificate of Occupation, which shows that the building has been completely certified and ready to be lived in.

2. I've heard that some developers retain control of the body corporate, so that issues are voted as "maintenance" rather than "structural fault" so that the warranty doesn't apply. How do you check if this has happened?

This simply can not happen. Why?

Because when the building is first completed and just strata titled it's in a phase known as the Initial Period. During the Initial Period the developer is responsible for all running costs and maintenance of the building.

The building finishes its Initial Period when one third of the aggregate unit entitlement of the building is sold.

Now, this leaves 2 thirds of the unit entitlement left that the developer still owns.

To provide equity and fairness to those that have already purchased and settled, and to prevent the developer from controlling the body corporate until he's completely sold out of the development, all other unit entitlements that the developer owns is reduced by 50% (i think - it could be more). So effectively, his voting power is halved (or reduced further depending on the legislation - I just can't remember what it is) until such time that only one third of the unit entitlement remains under the ownership of the developer, by which time the developer has no control over the owners corporation at all.

If you are concerned, you can ring the Strata Titles Institute who can provide further clarification around this issue.

I hope this helps.

 

[Sunder]

Thanks Joanna!

That's been a very detailed and helpful response. We are going to physically inspect the apartments this weekend.

If we go ahead, do you (or anyone else) know if a standard B&P inspection applicable to new apartments, and will it pick out structural defects in the main building, outside the the apartment?

Cheers,

Ken.

 

[beeroll]

Hi Ken,

One thing that comes up in the "FlatChat" section of Domain quite a lot is the issue of developers requiring that owners pass their body corporate votes to the developer as a condition of purchase, to get around exactly the regulations Joanna mentions. I don't _believe_ it's illegal, but it's certainly dodgy.

So have your solicitor make sure there aren't those kinds of conditions in your contract (even if _you_ get them taken out, other buyers may not, leaving the developer in control to a) not have building defects fixed and b) appoint their mates/related companies to lucrative maintenance contracts not in your best interests).

The guy who writes that section is called Jimmy Thomson, and you can reach him at [email protected]. He may be able to advise whether the developer of the apartments you're interested in has a history of this kind of thing or not.

Cheers,

Ben