When you buy a sectional title unit, you automatically become part of the body corporate which maintains, manages and controls the common property on behalf of owners.
As an owner you will be paying a levy which is set by the trustees and is used to cover the shared costs of running the building or complex.
Levies are compulsory and you cannot opt out of paying your levy.
You will be part of the community so you need to abide by the rules of the building or complex.
These rules are the management rules which deal with how the owners run the place in terms of voting, election of trustees and so forth.
It is your right to ask for a copy of the financials of the building or complex that you are thinking of buying into.
You need both the last month’s accounts and the latest annual financial account – done by an auditor except in very small buildings.
They will tell you lots about how the building is being run.
Things to look out for:
Monthly accounts: If accounts for the last month are not available by the 15th of the following month, it means that the building is not being well run financially.
More so, if the latest completed accounts are a couple of months ago.
Some accounts are very difficult to read for the non-accountant.
Accounts that do not show proper income and expenses could be a warning that things are not well.
Also, accounts that show most of the owners are not up to date with their levies is a bad sign – anything over 10 percent of the people in arrears is not good.
Annual financial reports: These must be done for the annual general meeting (AGM) which must be held within four months of the end of the last financial year.
For example, a February year-end building or complex should have the AGM by the end of June.
If the annual financials are not available within that period, you should be worried.
The place might be well run.
You should stay away from buildings that only have very old annual financials.
You need to read the annual financial report or get somebody who knows accounts to interpret it for you.
An annual financial report can tell you lots.
It will tell you who is in arrears and how long they have been in arrears.
Be on the lookout for buildings with lots of unpaid levies.
The annual financial report will also show you how much money is in the bank.
Some buildings or complexes can be very big properties – they need to have substantial reserves to be able to do painting, waterproofing, insurance and maintenance.
If there is little or no money, repairs and maintenance cannot be done.
It’s also important to know if there are huge outstanding accounts for water or electricity and whether there is money to pay the bills.
If not, the place has a problem and you should keep away.
You should also check if the building or complex is solvent.
It is usually the very last item in the report.
Finally, check if there are any adverse notes by the auditor.
The auditor is expected to make a negative statement if they think that the accounts are not being well kept.
You should be very careful about buying into a building where you cannot get a copy of the current and annual financial reports.
The other set of rules deals with how you live in the building or complex, the keeping of pets, how many people can stay in a unit and where you can park, among others.
So, if you have a dog you need to check whether you are allowed to keep it or not as not all buildings allow pets, especially cats.
Don’t complain when they tell you to get rid of your cat if you didn’t ask at the beginning.
You must get permission from the trustees in writing before bringing any pet onto the premises.
It is a good idea to ask for a copy of the rules so that you don’t get any surprises when you buy.
- Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant.