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New Strata Laws NSW

Discussion in 'Real Estate' started by Jacque, 30th Apr, 2007.

  1. Jacque

    Jacque Team InvestEd

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    As the effects of the new Strata Laws (NSW) come in, some older buildings are going to really have to get their act together to properly plan for the required 10year Sinking Fund Plan, as introduced back in Feb 2005. The main aim of the 10-year sinking fund plan provision is to assist owners corporations in building up sufficient financial reserves so that expensive capital expenditure can be paid for when needed. The theory is that this will overcome the need to ask lot owners to pay large, one-off levies, any time a sinking fund expense arises.

    Sinking funds are used to pay for such expenses as:

    painting of the building
    replacement of fencing
    driveway refurbishment/hard landscaping
    replacement of common property items such as carpets, roofing and guttering
    lift overhauls/refurbs

    Since this law was introduced, however, a further regulation was gazetted in
    April 2006 with the aim to widen the net and bring even more Strata Schemes under the new section of this Act (Strata Schemes Management Act 1996). Schemes will be included in four phases, based on the scheme’s age (and thus its strata plan number).

    Phase 1
    Strata plan no. 50,000 and above (not including those already covered by Section 75A) will be required to commence 10-year sinking fund planning from 1 July 2006.

    Phase 2
    Strata plan no. 30,000 – 49,999 to commence from 1 July 2007.

    Phase 3
    Strata plan no. 10,000 – 29,999 to commence from 1 July 2008.

    So watch out all you NSW investors who have older buildings with these strata plan no's. Personally, I think it's high time that such plans were introduced, as investors can sometimes find themselves up for unwanted stress and increased costs in shoddily run strata buildings. The owners corporations need to be organised, well run and above compliance in order to maintain value in these buildings.
     
  2. handyandy

    handyandy Well-Known Member

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    Location:
    Sydney Nsw
    Don't agree at all.

    As an investor its very easy to determine the state of the strata and also whether there are large expenses comming up.

    The other side that you need to consider is the increase in costs for the investor with a much larger sinking fund contribution required. Basically, on some of my strata's the strata fee has doubled simply to beef up the sinking fund. This sinking fund then earns no interest and is an absolute waste of funds. I would much rather do special levies to cater for any substantial repairs simply because I hold on to the money until required.

    The other side of the manager having money in the strata is that there is further temptation for the manager simply to approve expense/repairs because there is money in the kitty (even the sinking fund). If there is no money then the manager is not going to approve any idiotic requests from owners/PM without first discussing it with the executive. I know its all a matter of managing the strata manager but it does tend to fall in the too hard basket particularly where you only own 1 out of 15 units.

    My approach on strata's is keep them poor and have a long term maintenance/upgrade plan. Look at all expenses and ask questions at the meetings. Remove any authority to spend money from the strata manager (its part of the agreement) just like my PM's.

    Getting back to the 10 year plan. Don't let the strata managers railroad you into agreeing to this whole concept as it is not compulsory.

    While there are no penalties in the legislation for not complying with the 10-year plan provisions, a lot owner within a strata scheme would be able to apply to the Consumer, Trader & Tenancy Tribunal for an order instructing the owners corporation to meet its obligations.


    Cheers
     
  3. Jacque

    Jacque Team InvestEd

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    Sydney
    Don't agree at all.

    As an investor its very easy to determine the state of the strata and also whether there are large expenses comming up

    It may be for investors like you Andreas :) but you're a hell of lot more savvy than the average investor- especially the ones who are likely to purchase one or two units as investments in their lifetime.

    The other side that you need to consider is the increase in costs for the investor with a much larger sinking fund contribution required. Basically, on some of my strata's the strata fee has doubled simply to beef up the sinking fund. This sinking fund then earns no interest and is an absolute waste of funds. I would much rather do special levies to cater for any substantial repairs simply because I hold on to the money until required

    I can understand that fees would increase, as planning of this scope usually requires foresight and "putting money aside" definitely is going to hurt more now but isn't raising special levies later on really just the same thing? And why can't a sinking fund earn interest? I wasn't aware of this, as one of the strata schemes I'm in certainly is earning bank interest.


    The other side of the manager having money in the strata is that there is further temptation for the manager simply to approve expense/repairs because there is money in the kitty (even the sinking fund). If there is no money then the manager is not going to approve any idiotic requests from owners/PM without first discussing it with the executive. I know its all a matter of managing the strata manager but it does tend to fall in the too hard basket particularly where you only own 1 out of 15 units

    Agree here with you, as the manager really ideally needs to be "managed" as well, just like a PM. Easy to become complacent as an owner, as you point out, when your voting rights are small, however you still possess them when voting for expenditure of big ticket items.

    My approach on strata's is keep them poor and have a long term maintenance/upgrade plan. Look at all expenses and ask questions at the meetings. Remove any authority to spend money from the strata manager (its part of the agreement) just like my PM's

    I'm sure many BC's operate this way anyway, but good point. It's always so easy to lose the grip on the purse strings when you're not spending your own money!

    Getting back to the 10 year plan. Don't let the strata managers railroad you into agreeing to this whole concept as it is not compulsory.

    While there are no penalties in the legislation for not complying with the 10-year plan provisions, a lot owner within a strata scheme would be able to apply to the Consumer, Trader & Tenancy Tribunal for an order instructing the owners corporation to meet its obligations.[/QUOTE=handyandy;25818]

    I can see lots of owners choking up the CTTT lines with this issue! If there's no incentive to comply, then where will this lead?
    Thanks for the food for thought Andreas- you're always expanding my mind :)