Strata report red flags: what to skim for first

If you are buying an apartment, townhouse or any property on strata title, the strata report is the single most important document after the contract. Spend two hours reading it carefully; the cost of not reading it is measured in tens of thousands over your ownership.

What’s in the strata report

The report is a snapshot of the body corporate’s records, prepared by a specialist strata inspector for a fee of $250-$450. It contains: current levies, levy history, sinking fund balance, minutes of recent committee meetings, building insurance policy, any pending litigation, and any structural defect correspondence.

Red flags to scan for first

1. Sinking fund balance below $50k for buildings over 10 units The sinking fund funds major capital works (roof replacement, lift refurbishment, painting). A near-empty sinking fund means the next major works will be funded by a special levy - typically $5k-$20k per unit.

2. Recent or scheduled special levies Look for any levy above the ordinary quarterly amount. Common triggers: waterproofing remediation, lift replacement, facade repair. If the last two years show special levies, there may be more coming.

3. Defect litigation Any current or pending legal action against the builder or original developer. Common on buildings 6-10 years old where warranty periods are expiring. Litigation can last 3-5 years and lock significant unit value in uncertainty.

4. Building insurance exclusions Cladding claim exclusions, flood exclusions, asbestos exclusions. The building insurance policy summary in the strata report reveals what the insurer won’t cover.

5. Pet, short-stay, or renovation restrictions in by-laws If you are buying for Airbnb or have a dog, the by-laws may prohibit your intended use entirely. By-law amendments require a special resolution and take 6-18 months.

6. Meeting minutes full of disputes Multiple consecutive meetings dominated by conflict between owners or with the building manager signal a dysfunctional body corporate. You do not want to buy into an ongoing dispute.

7. Fire compliance orders Post-Grenfell, fire safety compliance has been heavily enforced. Reports from councils requiring fire system upgrades indicate a large capital cost is coming.

Cladding

Any building constructed 2005-2018 should be scanned specifically for cladding audits and remediation orders. Combustible cladding rectification can cost $30k-$100k per unit. Buildings with incomplete rectification are increasingly difficult to insure and to resell.

When to walk away

A strata report showing no sinking fund, ongoing defect litigation, combustible cladding, and recurring special levies is three strikes. Good broker advice is: walk, or adjust your offer by the expected cost of all three.