by Edward Cranswick
If you haven’t dealt with an owners’ corporation before, you might be unsure as to what precisely they actually do – or how they may help or hinder your property investment aspirations.
To find out more about owners’ corporations and their role – as help or as hindrance – we talked to Wakelin’s Jarrod McCabe to get some insights.
1. What does an owners’ corporation actually do?
“An owners’ corporation manages the property in a multi-unit type development. So whether that’s apartments, villa units, or townhouses – when there’s common property associated with that development the owners’ corporation will manage that area for the group. Sometimes they’ll be self-managed, for instance if there’s only two properties and the only thing they share is a driveway.”
“But when you’ve got a few more owners, and different people’s views need to be taken into account and there’s a lot more that needs to be managed – more costs such as insurance and gardens that need to be maintained – that’s when an owners’ corporation comes in.”
Basically speaking, the owners’ corporation can play the part of an “independent umpire” to help reconcile views and “adjudicate issues”. But McCabe stresses that they can’t force the owners to do anything, and that even the best owners’ corporation will be useless if you’re dealing with owners who refuse to follow their advice.
2. Can owners’ corporations get in the way?
“It’s not so much that they get in the way, it’s more a matter of whether they’re managing these common areas correctly. If you don’t have a good owners’ corporation they can block things from happening. So an example where they can make things a little more difficult is with a form of title and ownership that’s common with older apartment blocks – particularly art deco and 1950s – there’s ‘company share title’ and there’s ‘stratum title’. And it’s a good idea with blocks like that to convert those to strata title. And the reason it’s a good idea to do that is banks don’t like lending as much against those original forms of title.”
But this can be a problem when you have an owner that has no reason, or wish, to change his or her form of title.
“But what can happen is that one or two people think, ‘Yes, we do need to do this because it will increase the value of our property’ – and it absolutely will – but if the owners’ corporation isn’t au fait with how that needs to be done then they can put up roadblocks and make it difficult to get that through. And you do need to get 100% agreement from all owners to get that done, and if they start up roadblocks that can be particularly annoying from an owners’ perspective. This may particularly be the case with elderly people, who have no need to convert the title and would prefer things to remain unchanged … because it does cost – it would cost two, three, four-thousand dollars per unit.”
3. On the other hand – how can owners’ corporations be helpful?
“The reverse is an owners’ corporation that facilitates what needs to be done – whether it’s upgrades like new carpet in the stairwells or upgrading gardens, painting window frames – those sorts of things. Setting up proper payment mechanisms to coordinate what needs to be done. That really makes the difference between a good owners’ corporation and one that lets things lapse and allows things to look shabby.”
With properties that are highly dependent for their value on the improvements made, as opposed to the inherent land value, this is particularly important. Even if you have a great looking and superbly maintained unit, if the common property associated with it is in bad shape then this can seriously dampen the value of your investment.
4. How can a potential buyer get an idea of the thinking of the other owners or the owners’ corporation prior to purchase?
“So when you buy a unit within an owners’ corporation, part of the contract of sale is that the minutes from the previous annual meeting have to be supplied, and an owners’ corporation certificate has to be supplied. And the minutes go through ongoing works that need to be attended to, and outstanding things that need to be done, and it also lists the attendees – who has been there, and what the plans are. So that’s an important part that needs to be done prior to purchase – having a good look through those minutes. And also taking a look at the owners’ corporation certificate to see if there’s anything outstanding, what the plans are, are there any leases or license agreements over common property. All those sorts of things begin to paint a picture.”