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Published by UnitCare Services. P.O. Box 4040, Norwood South 5067 52 Fullarton Road, Norwood.

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Gordon RussellManaging DirectorUnitCare Services

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winter 2015Strata Inquiry: Your chance to have your concerns heard.A State Parliamentary Inquiry is being held examining the effectiveness of strata legislation. The Parliament is looking for submissions from unit owners on matters of concern. We understand that they are continuing to accept submissions as of June 2015.Below are some common issues you may be experiencing with your body corporate manager. If you are experiencing difficulties, we recommend making a submission to the inquiry. Send your emails to erdc.assembly@parliament.sa.gov.au.Conflicts of Interest:

Content withheldShould managers be banned from having any related party interest in businesses that supply services to unit owners?Asbestos Registers: The Executive Director of SafeWork SA has stated that the requirement for an asbestos register “does not apply to any part of residential premises that is used only for residential purposes.” Yet managers are still advising groups to spend between $1,000 and $2,000 of their funds on installing unnecessary asbestos registers. In one case the money is spent on the manager’s maintenance firm. Has your group had this experience? What should be done to stop this practice?Bank Account Interest: Is your corporation receiving interest on your bank account? Your manager should be transparent about where interest on owners’ savings goes. Some managers are not passing on your interest. Should managers be obliged at law to keep client’s money in high interest term deposits?Managers: Re-invoicing: Most managers receive commissions of 15 to 20 percent when paying client insurance premiums. However, we have sited evidence of a manager re-invoicing clients their insurance renewals in order to inflate administration charges. Should managers be able to do this?Managers: Contractor Registration: Some strata managers are charging unit owners for an external agency to check contractor credentials. For the owners with one medium sized management firm the fees amount to some $28,000 per year. The latest figures for one of the larger management firms reveals their clients are paying $112,000 per year. With managers using a small pool of contractors one has to wonder if there is a less costly option. Should unit owners be paying to check manager’s contractors?Access to Records: Some strata managers have been charging excessive fees for allowing authorised persons access to corporation records. This inhibits a manager’s transparency in their actions. For example, should all corporation records be made available online for all officers to access? Should fees be regulated?Owner Contacts and Details: We are aware that owners seeking to change management are being supplied with owner lists lacking contact details. Managers should provide comprehensive owner contacts and details. It is imperative that new owners receive a list of owner contact details. Have you or fellow owners been obstructed in getting access to your group’s records?

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Gordon Russell ps: Do you have any friends who need to read our newsletter? Ring and we will post one out or they can download it from our website o

PARLIAMENTRY INQUIRY - HAVE YOUR SAY

INSURANCE

Strata Plans: Owners should be provided with up-to-date strata plans. We strongly believe that the search documents required for the sale of a unit or lot must include a set of up to date plans. In our experience this will help eliminate misunderstandings with yard and car park ownership amongst other issues. Do you believe that the law should be amended to make it mandatory to supply body corporate plans with searches on sales of units?Exit Fees: There should be no exit fees when terminating a contract with your body corporate manager. This is a deterrent to termination and is not allowed under the Australian Consumer Law.Transparency: At UnitCare, monthly ledgers are supplied to all Treasurers and posted online for all officers to scrutinise. We advise all managed groups to seek this level of transparency. Do you believe there should be greater transparency over how body corporate managers manage your funds and records?SACAT (Tribunal): The South Australian Civil and Administrative Tribunal is now open but not for South Australia’s 100,000+ unit owners. This resource will be useful for unit owners wanting to settle disputes out of court in a low cost and accessible manner. Body corporate managers are not licensed or regulated. The SACAT would be a useful tool for making managers accountable for their behaviour. Should the Parliament amend the Strata & Community Titles Acts to send disputes to the new SACAT? Options for Submissions

1. Ask to be heard2. Make a written submission on your concerns3. All of the above.Email to erdc.assembly@parliament.sa.gov.auMail to: Executive OfficerEnvironment, Resources and Development CommitteeGPO Box 572, Adelaide 5001

Phone 8237 9387Fax 8231 9130

PUT UP OR SHUT UPEvery week we hear of the neglect and careless attitude of some other body corporate managers.There are also some challenges with dispute resolution for unit owners here in South Australia. We lag well behind the other states in this regard.Your Parliament is reviewing the Strata & Community Titles Acts following the changes made some two years ago.We encourage all those with an interest in body corporates to seize this rare opportunity for the improvement of services, legislation and regulation of body corporate managers.Please see our article on page 1 for details.It is now up to unit owners to put up or shut up o

Airbnb is becoming a popular option for many of us. This article from http://www.titlemagazine.com.au/ takes a look at the insurance risks.You have a five-week holiday booked in a month’s time, and your home will be sitting there empty while you venture off overseas. So you think, why not give Airbnb a go? It’s a great opportunity to make a little money on the side. It could even pay for most of your overseas accommodation costs. Sounds wonderful, right? We think so too. However there is one thing you should check out before taking the Airbnb plunge with your property; your insurance. You shouldn’t assume your Strata or Home Contents Insurance policy will cover you for any malicious damage or theft whilst Airbnb tenants are living in your home.Take this claim scenario for example: Kate and William let their apartment out to a couple via Airbnb while they travelled to London for six weeks to visit their son George. They returned from their holiday to find their apartment trashed, and their entertainment system worth more than $10,000 gone. Bad turned to worse when they tried to lodge a claim under their Contents Insurance policy and it was denied in full.Why your insurer can deny your contents claim…

Non-disclosure: When entering into an insurance contract, you are required to notify the insurer if there is any change to your circumstances, as this may affect your insurance cover. A Contents policy will generally not cover your possessions when your property is being used for short-term letting. Failure to notify your insurer of a change in living conditions could be considered a breach of the contract, and as such your policy can be voided, leaving you exposed.No evidence of forced entry: For theft of contents to be covered, many Contents Insurance policies require clear evidence of “break and enter” to respond. In the instance above, Kate and Will willingly gave their keys to a short- term tenant, and as such there was no sign of a break and enter when their home entertainment system was stolen.You are making an income: Your insurer may perceive an Airbnb short-term letting as carrying out a business activity within your home. This may void your cover, as the intention of a domestic Contents Insurance policy is not to cover business activities in your home. You may be exposed to significant financial loss where your Contents Insurance policy fails to provide cover when letting your apartment through Airbnb or another peer-to-peer leasing site. If, after reading this, you still think Airbnb is for you, then we urge you to follow our tips to protect your assets.

Our recommendations: Do your homework – read reviews on prospective tenants. Before committing your property to Airbnb, notify your insurer immediately.If your insurer agrees to provide Contents cover despite changes to your circumstances, request the insurer’s confirmation of cover in writing.If your insurer chooses not to provide Contents cover for short-term letting, we would strongly recommend that you speak to your insurance advisor.Obtain clarification from your insurance advisor on what your Strata building Insurance will provide cover for. Each policy will vary regarding their specific exclusions and inclusions, and you should be well informed before opening yourself up to any potential asset exposures o

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BIKES IN UNITSBODY CORPORATE HEALTH CHECK

The following is an exerpt from an Adelaide Now May 12th 2015 article..

GREEN-conscious residents living in an environmentally-friendly apartment block in Adelaide’s CBD have been told to find somewhere else to park their bikes.

Whitmore Square Ecohousing residents have told The City they’ve been warned they’ll have their bikes forcibly removed if they continue to park inside or around the building.

The ‘eco’ city apartment block, part-owned by Adelaide City Council and promoted as affordable green living in the city, was meant to have bike parking or racks but it never happened.

Residents have received a letter from Strata managers Whittles with the threat that bikes stored or chained along pathways or walkways or in any common area other than the basement would be forcibly removed.

With an increase in the use of bikes here in Adelaide many Strata & Community titled unit groups (body corporates) face a challenge. How to answer the problem of bikes chained to various pipes and rails in and about the common grounds and entrances.

We have sighted some by-laws that prohibit the storage in common areas and in the units. This is we believe unstainable. With many bike

riders choosing to pay $1,000+ for their bicycle, either the body corporate find space for a bike shed or encourage residents to store their bikes in their units.

There are some clever storage solutions for storing bikes inside units that are often short of space. Try http://www.pinstopin.com/gravity-bike-storage-rack/ for ideas. The illustration shows two bikes against the wall. This takes up little space and requires no wall mountings.

We remind bike owners that they are responsible for taking care not to damage walls and doors when getting their bikes to their units. Any damage is their's to make good and could result in a back lash from owners stuck with lots of costly repairs.

The problems at Whitmore Square units appear to be the result of poor design. Given it is designated as 'ecohousing' this must be very annoying for residents and owners.

The manager, we believe, should be promptly helping the body corporate workshop solutions o

The following recently appears on the website http://mybodycorpreport.com.au/ We thought this comprehensive check list would be useful for potential buyers of units and those wishing to stress test their own group. We have edited some text to suit SA.....

Just as important as knowing how to spot potential issues is knowing how to spot the things that are actually working out well. Here is a list of signs of a healthy body corporate (strata or community title).

1. A demonstrated history of addressing maintenance issues: For example, I would expect to see several instances of this following entry in the minutes (of course relevant to the subject body corporate issues):

Tabled letter from Lot 5 regarding water ingress through windows. Noted the window shares a boundary with common property. Resolved the building manager attempt repair.

On the surface it appears to be a simple line item in a minute, but it tells me that: Correspondence received from lot owners is passed on to the Committee. The Committee read and discuss matters raised by lot owners. Effort is made to determine if the matter really is a body corporate issue. The Committee take action to rectify matters once responsibility is determined. All actions taken are reported to lot owners via appropriate channels ie minutes.

This simple entry bodes well for the likelihood of having future issues dealt with.

It’s also giving me clues to the effectiveness of the Committee (pretty effective), the professionalism of the body corporate manager (also good) and the seriousness with which they take lot owner complaints (very seriously), all good things.

2. No / low new building defects: All new buildings have defects, it’s the nature of the building process that there are too many variables for things to be both completed timely and 100% accurately.

Dealing with building defects under warranty is a long winded, frustrating process. A new(ish) building with few or already rectified defects is best. However if there are still outstanding issues, it’s the response to the defects which is most important. Once defects are identified they should be reported to the builder, and this is the crucial part, the builder should immediately rectify them.

That doesn’t mean they accept responsibility instantly for everything nor does it mean that everything needs to be fixed first time or else. But the builder does need to be openly and responsively engaged with the body corporate to find a solution.

3. A healthy Sinking Fund balance: New buildings have defects and older buildings become run down and require capital works. Again the need is not as important as the response to it, and in this case it’s the balance of the Sinking Fund that’s the key performance indicator. Buildings do eventually need capital works and the body corporate should be collecting funds to meet those needs.

How much is enough? The Sinking Fund Forecast is an estimate of how much to collect and when it will be spent. A healthy Sinking Fund balance is in line, roughly, with the forecast and is enough to cover the expected upcoming works.

4. Any Administrative Fund deficits are recovered quickly:Given the way ongoing expenses are collected and disbursed it’s common for Administrative Funds to run into deficit.

If the deficit is recovered promptly there is no issue. Budgets should reflect that deficits are being recovered.

When you buy into a body corporate and there’s a deficit in the administrative fund you’re essentially buying a debt. If there are other problems it can be the final straw.

A healthy body corporate will recover deficits immediately and if the cause is likely to be ongoing, raise the Administrative Fund levy so it doesn’t happen again.

5. Levies are issued consistently: Habits are incredibly powerful, and for a body corporate you want your lot owners to develop a habit of paying levies every period. That requires that levies notices are issued consistently, for the amounts quoted in the AGM minutes, and within the periods declared.

Late levy issues upset people’s routines and have a negative impact on collections. Missed levy issues are a red flag because somehow those missing funds must be recovered, usually by double levies for the next period. Consistent levy issues increase financial solvency and indicates professionalism from the body corporate management or secretary.

6. No / low levies in arrears: Outstanding levies are a nuisance for both the body corporate and lot owners combined. They compromise cash flow, create the need for collection tasks with all their associated costs (which then also require collection), and promote disharmony. Less is best.

7. Clockwork AGM’s: A smoothly running body corporate will hold their AGM’s at the same time each year, within a few days, year in year out, like clockwork.

One late AGM is only a blip on the radar but a consistent record of delays is an indication of management issues. A missed AGM is a serious concern.

8. A Committee is elected each yearApathy is a real problem that many body corporates battle with every year which manifests itself as few, if any, votes for general meetings and no nominations for Committee. Without a Committee, even one person making decisions, the body corporate is vulnerable to delays and conflicts. Essentially the body corporate leaderless and in limbo.

The best outcome is a Committee representing a cross section of the lot owners who are actively committed and involved in maintaining their and your investment.

Contested elections are a good sign too. It indicates that many lot owners are involved, and if they don’t get elected, they’re essentially acting as the ‘opposition’ or oversight.

9. Regular Committee meetings: Body corporates are homes and businesses and they are buildings that are well utilised. There will be business to attend to, even if it’s only routine stuff like renewing the insurance, approving pets or making repairs.

Many issues are very complex and require time and effort to understand, particularly for those of us who have no building background. Regular meetings allow the Committee to get clear on the issues and make informed decisions. It also allows space to make plans and create an agenda for the building moving into the future.

Sometimes Committees take care of business via a “flying minute” which is simply a record of decisions made without meeting. It’s adequate for reacting to issues and should be the minimum of engagement.

Decisions made without record are maddening and it misses the opportunity to build value through a documented history.

10. Body corporate records are complete: A body corporate's records are as much a part of the value of the property as the pool or gardens. A clearly documented history makes a building more attractive to buyers. It also reassures other stakeholders like Mortgagees and Insurers and it’s a powerful tool when disputes arise. I look for neat, tidy records that contain some sort of order, but that is not a prerequisite. They can be stuffed into a dusty shoebox for all I care so long as they contain all the documents that are required.

Complete records speak to the professionalism of management, compliance with legislation and commitment to the processes that protect the rights of lot owners.

11. The building is fully insured: Protecting the common property and by extension everyone’s investment is vital. It’s as equally important to ensure the building(s) are insured for enough.

There’s a prescribed method for doing that in body corporates and that’s by obtaining regular updates (we suggest every five years) of an Insurance Valuation prepared by a Quantity Surveyor. The body corporate should then be insured to at least that value.

That’s pretty cut and dried. I expect to see a valuation and I expect to see the building insured to at least that value, and if it’s not, I would want to know why not.

12. Legislative compliance reports are in place: There are a number of pieces of legislation that affect body corporates and compliance is mandatory. For instance, buildings with a pool must have a pool safety certificate. Compliance with legislative requirements reduces lot owner’s exposure to risk.

Plus you avoid the natural issue the legislation is aiming to eradicate, like toddlers drowning in your pool, which is a very good thing.

13. No / low contravention notices: On the surface a group of strangers moving in together seems like a really bad idea. It’s only the commitment to observing by-laws/articles that makes it all work.

One person who refuses to play by the rules can have a devastating effect on the harmony of the whole body corporate, although of course bylaw breaches in most circumstances are more annoying than anything else.

To avoid conflict, by-laws should be applied to every resident and lot owner consistently. By-laws do need to be policed and that needs to be done in an even handed, respectful manner that promotes high levels of compliance.

In the records this is demonstrated by few, if any, contravention notice issues. Notices are only issued if a breach has happened and requests to rectify are ignored.

14. Low levels of complaints about maintenance issues: You may walk around a body corporate and think, wow, so neat and tidy, but if you live there you find things that don’t work or get damaged. Those things should be reported to the Committee, who then rectify the issues.

Lots of complaints means lots of problems, or one large, serious one. Less is best here as well, although ironically no complaints could translate to no one really cares.

A small amount of complaints, which are then reported and addressed (though not necessarily rectified) in the minutes is a good sign. It indicates lot owners are engaged with keeping the body corporate in good order and the Committee is responsive.

Conclusion: There are a lot of body corporates out there that will tick every one of those criteria.

Of course there are a lot that won’t as well. That doesn’t necessarily mean avoid them at all costs, quite the contrary. Some things are more important than others, depending on the type of body corporate, your personal goals and the other benefits the body corporate offers o

BODY CORPORATE HEALTH CHECK (CONTINUED)