The Ultimate Guide to Strata Management for Property Developers

Property developers, be it their first project or their tenth project, are always confronted with the decision of how much each lot should contribute to the overall strata budget.

For example, let’s take a look at a standard apartment block.

One view is to keep it nice and simple with all apartments in the same building contributing equally. There are flaws with this method, however, because not all apartments cause the same amount of expense. The penthouse, for example, will obviously use the lift more than an apartment on the first floor.

Another view might be that bigger apartments cost more to maintain, therefore each apartment should pay according to square meterage. But does someone in a large apartment use the communal garden more than a person in a small apartment?

And what about apartment price? If someone pays $800,000 for an apartment with a view, will their building maintenance expenses be more than the apartment facing the road that sold for $640,000? Ability to pay more for housing is not the same as being the cause of expense.

In short, body corporate and strata management is never straightforward or easy, and that’s why it pays to leave it to the experts.

Starting early

One of the most valuable lessons a successful developer can learn is that having a qualified and licensed strata manager working on a project from day one pays off. It’s a mistake to think that a strata manager is merely an add-on at the end of the project – a strata manager is so much more.

Strata is part of the process of going to market with your development. Failing to apply the guiding principles correctly because you tried to tackle it yourself can cause big problems down the line.

From the very beginning a strata manager can offer expertise in insurance, certification, and all the grey areas you’re bound to stumble across when developing your project. A strata manager can help to ensure your project runs smoothly, and with a good understanding of building codes and standards, reduce your risk of defect claims.

Developing a site is a team effort, and your strata manager should be one of the key early players. Developers can save a great deal of time, money and hassle by getting a strata expert to draft the first set of bylaws, particularly for mixed-use complexes. These bylaws are vital to help determine the first year’s strata levies payable by all new owners and yourself (the developer), should any lots remain unsold.

The benefits of early introduction

You might be fooled into thinking that bringing a strata manager on board from the early stages is like throwing good money away. However technically, a strata manager can only be paid or employed by an owners corporation. This corporation won’t be formed until 25 percent of all development lots reach settlement.

So why then would a strata manager want to get involved?

Generally speaking, traditional asset valuation for a strata management group is based on:

• The number of lots under management
• Average lot size
• Current signed agreements
• Length of agreements

Asset valuation might mean business profitability for some, but for others, it comes down to reputation and growth. For Strata Data, our reputation relies on us being good communicators. If we’ve been there from the beginning of a project, we know the intricacies of the development, and this comes in handy when reporting to council or town planners, or when offering advice to committee members. We require in-depth information to ensure that all decisions are made smartly, and with increased knowledge we have greater ability to think on our feet. Quick, decisive actions make for the smooth delivery of our services.

The bottom line is that being on board early helps us, our committees, our homeowners and tenants, and you (the developer). It ensures that your project has every possible chance of success, and that’s a win-win for both you and us.

Strata on hand

Taking advantage of strata management early means that you’re uniquely placed for building a great community.

Strata Management knowledge provides solutions that maximise sales and enhances the living experience of occupants, because we truly know what works and what doesn’t. We deal with occupants every day of the week, so there’s no better way to build livable spaces that are easy to sell.

They strike the right balance between the needs of a developer, landlord and resident, meaning we can help everyone involved avoid costly mistakes and frustrations down the track. Just think of strata management as Switzerland, providing a neutral perspective for the betterment of all parties.

Legislation

Like all good things in life, property is governed by an ungodly amount of legislation. Local environmental and development control plans – LEPs and DCPs – must be researched before a proposal to build is submitted. This is regardless of where a site is located. A strata plan must also be registered with the respective land titles office.

Many local councils and lenders prefer strata schemes to less flexible company titles. In fact, strata titles can sell for significantly more than a comparable company title.

Strata schemes differ from other titles in that an individual lot is bought or rented. Common property, such as visitor parking, corridors, external walls, air conditioning, roof and garden and in some cases a pool or gym then become shared ownership, and body corporate fees are established. If you’ve involved strata management from the beginning, this body corporate and community management plan can be disclosed carefully, informing buyers about all the relevant facts about the property.

If your body corporate and community management plan is wishy-washy or it doesn’t comply with the Strata Titles Act, your buyer can terminate the contract at any time up until settlement. Since reaching settlement can take many months or even years, it’s wise to avoid what could be long stretches of uncertainty.

Like building codes though, strata laws can change, so work with your strata manager to ensure you meet current obligations and that you’re prepared for any potential or real effects of new laws.

Being aware of recent legislative changes

Strata Law changes effective from 1 July 2016 include:

Restrictions on parties with connections to developers: Unless they are an owner in the building, any building manager or equivalent who has a connection to the developer cannot be appointed or elected to the Executive Committee. There are also significant restrictions on developers granting strata schemes to strata managers/agencies with whom they have a previous connection.

Initial maintenance schedule: The developer must provide an initial maintenance schedule to the Owners Corporation at its first AGM and provide an estimate of levies to the Owners Corporation.

Strata redevelopment or sale: A written proposal must be given to the Owners Corporation regarding the collective sale of redevelopment of a strata scheme. The strata committee must consider the proposal and a copy of the proposal be given to all owners. An all-owners general meeting must then be convened.

Developing a body corporate

When you subdivide and register land with a strata scheme, this creates a body corporate. Anybody involved in the strata scheme automatically becomes a member of the body corporate. This body corporate must be set up promptly upon completion of construction while you still maintain voting control.

All projects begin with an idea. Assuming everything goes to plan – the building is complete and the lots are registered – the body corporate comes into being. How this body corporate is developed will largely depend on:

• Majority lot owners
• Building defects
• Levies and levy arrears
• Disputes re: caretaking and letting agreements
• Contribution Lot Entitlement adjustments

Strata management during the property development process

As the property developer, you’re a powerful force in how the body corporate is presented, and how a community is given physical form. Your decisions through the development process have a substantial impact on the body corporate and lot owners, particularly in the first few years. If you want to do right by your body corporate and lot owners, you’ll get a strata manager in early. That way the body corporate is not only set up as best as it can be, but supported in the way that it should be.

It’s important for developers to carefully consider and plan all aspects of their project, especially when it comes to management and consultants. Failing to do so will only lead to issues further down the track.