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"If you have money invested in a strata scheme, you'll want to make sure your investment is protected at all times through the proper care and regular maintenance of your building and facilities.  And, there's no better way to achieve this than through some sort of Preventative Maintenance Program.  Many schemes seem happy to ignore this vitally important part of running a scheme but it WILL come back to haunt them.  Here's a guide on how to begin to properly care for your strata investment."

STRATA PREVENTATIVE MAINTENANCE

• The Benefits
• Problems that can be avoided
• Who's responsible?
• Major Works
• Sinking Fund Assessment
• Building Audit
• Pest Control
• Safety Audit Report
• Public Liability Insurance requirement
• Building Defects resulting from the Original Construction
• Home Warranty Insurance

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The Benefits

To identify, correct and maybe even avoid deterioration of your valuable asset, a Preventative Maintenance Program (PMP) should be discussed with your strata managing agent and all the owners - and implemented as soon as possible.

Everything that can breakdown, wear out or deteriorate over time should be identified and included in the PMP.  The method of preventative maintenance for each item should be determined and put into some sort of schedule making sure the costings to have these things done are as accurate as possible and regularly updated.  This is vitally important as the PMP will play a big part in determining how much should be allocated to the sinking fund from each levy payment received.

Even the location of a building can often cause certain areas to deteriorate quicker than usual.  Two simple examples of this are where

• concrete surfaces are located near the ocean
• stained timber windows face the western sun

Sinking Fund is vital

The main way funds are raised to pay for a scheme's expenses is through the quarterly levy payment system with a portion of all levies received being directed towards the Sinking Fund - the purpose of which is to provide sufficient funds to meet the cost of major works like common property painting, carpet replacement in the stairwells, guttering replacement, roof repairs, fire safety compliance, unexpected emergencies, etc.  Without enough money in the sinking fund the complex will ultimately deteriorate negatively affecting the market value of every owner's property.

Unfortunately, not all schemes allocate enough funds to this vital component but, a change to legislation a few years back now has helped to stop the very common practice of 'avoiding the Sinking Fund'.  However, there's still a way to go before the system is perfect.

TIP — Have a look at your levy notice and see what portion of the money you pay is being allocated to the Sinking Fund.  If it's only small, then you should make a point of bringing it to the attention of the Executive Committee for inclusion as a motion for discussion at your scheme's next general meeting.  Believe it or not there are still schemes out there that put the absolute minimum into their Sinking Funds - which is crazy.

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Problems that can be avoided

A poorly maintained building can also create a lot of 'unpopular' problems in the future.  Here are just a few:

• when works are needed and sufficient funds haven't been allocated AND the present owners aren't in a position to contribute to a special levy, the works remain outstanding thereby possibly causing even bigger problems in the future
• 'sinking fund aware' prospective purchasers may look elsewhere when they discover your scheme's sinking fund has little or no money in it
• when you plan to sell your unit, there may be a number of maintenance issues the Owners Corporation has not attended to creating 'doubts' in the mind of the prospective purchaser
• a prospective purchaser may ask you to reduce your sale price to compensate for any special levy (for outstanding works) they may be asked to pay in the future
• it may be difficult to sell your unit as the overall appearance of the scheme may not be as attractive as other better-maintained schemes in the area

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Who's responsible?

Ultimately, it's the responsibility of the Owners Corporation to look after all aspects of the strata scheme - which means it becomes every owner's responsibility as the Owners Corporation comprises each and every owner!  As part of the Owners Corporation, it's up to you to ensure a PPM program is firstly OK'd (through the general meeting 'motion' mechanism) and then actually put in place.  Remember: It's YOUR money you're protecting so make sure your valuable investment has a plan for the future!

Tip - Preventative maintenance is always much better (and usually a lot cheaper in the long run) than doing major repairs when something breaks - and something will eventually break.  Also, repairs are generally much more expensive when they happen through neglect....just think of your car....if you don't service it regularly, what eventually happens?

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Major Works

The only way any major works can be done on the building is if there's enough money available to carry out those works and the Sinking Fund's purpose is to provide sufficient money to enable major works, both anticipated and unexpected, to be completed.

When something requires attention, job specifications should first be prepared by the appropriate licensed professionals to ensure the problem is correctly diagnosed.  This way, the correct and the most economical method of repair can then be done.  Expert advice is critical for some major works which can include:

• roof replacement
• concrete spalling
• guttering replacement
• fire safety compliance
• lift upgrades
• building facade repairs
• window replacement
• archbar replacement
• cracking to walls and subsidence
• uplifting of driveways and concrete areas
• waterproofing and rising damp problems
• pest eradication
• landscape upgrading
• pool resurfacing
• carpet replacement in the stairwells
• common property painting and maintenance

Lannock Finance have produced a quick reference guide on the do's and don'ts regarding capital works called "Doing the right Capital Works" and is worth having a look at.

TIP:  With maintenance and repair being such an important area in Strata make sure you also have a look at the section on Ongoing Maintenance and Repairs for additional information.

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Sinking Fund Assessment

A Sinking Fund Assessment should be prepared by a suitably qualified professional, such as a quantity surveyor, so an accurate estimate can be made of future anticipated expenditure.  This assessment can then be used to prepare a detailed Preventative Maintenance Program to suit your building.  It'll also advise you what sinking fund levies should be paid to ensure sufficient funds are available when work is needed.  The usual time frame for these assessments covers a 10-year period with a review to be done every 5 years.

Remember: Every Sinking Fund Assessment should also include an amount for the 'unexpected' events.

Do you want to see a few simple quidelines for getting a sinking fund assessment done?  Well, Lannock Finance have produced a quick reference guide on sinking funds called "Getting a good sinking fund plan" that makes some good points.

Initial Sinking Fund Assessment Timetable

Since February 2005, changes to the NSW Strata Schemes Management Regulations have introduced a compulsory timetable for strata schemes to obtain their first sinking fund assessment as follows:

• Schemes numbered 50,000 or greater had to obtain an assessment by 1 July 2006
• Schemes numbered 30,000 to 49,999 had to obtain an assessment by 1 July 2007
• Schemes numbered 10,000 to 29,999 had to obtain an assessment by 1 July 2008
• Schemes numbered less than 10,000 need to obtain an assessment by 1 July 2009

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Building Audit

A Building Audit is similar but separate to the Sinking Fund Assessment and should also be prepared by a suitably qualified professional.

The Building Audit provides a report on the present condition of the building and advises on any necessary repairs or defects needing attention.  The findings in the report can be used to provide information to the Sinking Fund Assessment.  A Building Audit is also very important if the Owners Corporation needs to:

• determine any building defects which will be brought to the builder's attention
• make any insurance claim under the NSW Home Building Act 1989

The sorts of things a building audit can pick up include:

• structural defects
• rising damp
• exposed asbestos
• roofing & guttering problems
• plumbing & electrical problems
• illegal building works
• existence and damage of termites and borers

Should you spend the money?  Building Audit reports do not come cheap but it's much better to find out earlier (and get anything fixed that needs fixing) rather than finding out later on when, due to neglect, the problem that was only small before has become much bigger and more involved to fix now.  Repairs due to neglect are always much more costly.  These sorts of things can come back to haunt you.

And don't forget there's always the litigious risk side that will raise its head if an accident occurs and something should've been fixed but wasn't.

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Pest Control

Pest control, while it may seem a small thing, can actually become a major problem if left unchecked.  Many schemes make the mistake of not doing an annual pest report (due to the cost) and then, a few years down the track, find the entire complex riddled with termites or similar.  When this occurs, the pest problem has progressed from being a simple preventative maintenance issue to a major works issue due to the amount of repair and rectification work that must be done.

This is just another simple example of false economy exercised by a well-meaning but misguided Executive Committee wanting to save a few dollars each year - but with it ending up costing everyone a whole lot more in the long run.

To avoid this sort of thing happening at your scheme (especially if the scheme is on the 'older' side):

• keep up the regular pest inspections
• always use a licensed, qualified pest technician
• listen to the advice given by these specialists - especially if you are advised that the building is conducive to termite infestation
• make sure you take any recommended necessary preventative actions

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Safety Audit Report

The provisions of the Occupational Health & Safety legislation require that the Owners Corporation provide and maintain the common property to

• ensure it's safe and without risk to the health of contractors and others who may use it
• agree to undertake ongoing risk management assessment to identify and eliminate any such risks

One way to undertake such risk management is to have an independent expert inspect the common property and report to the Owners Corporation any identified risks.  This is known as a Safety Audit.  Once notified, the Owners Corporation should address the risk(s) and repair the common property as required.

Public Liability Insurance requirement

A regular and ongoing assessment of risk is also necessary to provide evidence to public liability insurers of the proper management of the common property in the event of a claim.

Some more information

NSW Workcover have a huge section on Health and Safety (OH&S) which offers helpful summaries, information pages and even a link to the legislation.  If you need to know about Health & Safety and all it entails, this is the place to go.

TIP - If you go onto the Workcover website using the link above, don't forget to have a look in the navigational menu in the top left corner and also the Related Publications box in right column towards the bottom of the page for some very relevant information links.

Should you spend the money?  Again, it's much better to find out earlier (and get anything fixed that needs fixing) rather than finding out the hard way, courtesy of a letter from a friendly litigation lawyer, if an accident happens.  Only then do you discover that the scheme violated one or more Health & Safety requirements thereby leaving the Owners Corporation liable for any litigation claims (and fines) that may surface.  Now, you may be lucky and get away with it....but then again you may not.  Is it really worth the risk?

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Building Defects resulting from the Original Construction

This is an extremely complex area of strata law and it's suggested that, if the building defects are significant, you should seek the advice of specialists, such as building diagnostic consultants, engineers, lawyers and your strata managing agent before doing anything.

As it's an area that can create significant tension between the involved parties, expert assistance at all stages of the negotiations is critical to ensure fairness for all concerned.  And, there is no substitute for know exactly how to handles these delicate situations.

Here are a couple of excellent information resources that can assist greatly in giving you a direction if defects ever becomes an issue - just follow the links.  But remember, begin with your strata managing agent first before going down any of the other paths.  Their experience and expertise might just save you a lot of frustration and unnecessary expense.

A 'must read' is the information page called Resolving Building Disputes from the OFT (NSW Office of Fair Trading) which also has a link to a section dedicated on how to lodge a complaint.  Very helpful.

And for even more OFT stuff - there's a wonderful (but short) fact sheet on defect resolution which steps you how it will all work if you head down this path.  Great stuff!  It's called Home Building Dispute Resolution.

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Home Warranty Insurance

For a truly great and indepth explanation of what Home Warranty Insurance (HWI) is and does then go no further than the OFT website section called Home Warranty Insurance

The OFT continues with the "good intel" with their Home Warranty Insurance in NSW fact sheet.  It outlines exactly how this system works in NSW and is worth a look at.

Another publication worth reading is Home Warranty Insurance – Why Bother? from Nationwide Insurance Brokers on the Outdoor Design Source website.

Even the Insurance Council of Australia has got into the act and has come up with Home Warranty Insurance - Myth versus Fact - so don't forget to have a look at this one too for a couple of interesting insights.

All the latest changes and regulations regarding Home Warranty Insurance can be found in the OFT's website section called: New home warranty insurance arrangements - so make sure you check it out too.

Specific Information for Licensees

For all of you builders and tradies out there who are the ones required by law to take out this insurance, ensure you read the OFT fact sheet on Home Warranty Insurance - Information for licensees to see just what your obligations are.  It's short and to-the-point and will give you most of what you need to know.

TIP - There are some situations where NO Home Warranty insurance is required - such as for buildings over 3-storeys and commercial properties, amongst others.  Make sure you know how the scheme is impacted - if at all.  If you don't know the answer then be sure to ask the questions of someone who will know or who can find out for you!!  After all, it's law!

Still some confusion...

However, there still tends to be some confusion regarding exactly where HWI fits into this whole defects area.  Many people are under the misconception that owners can make a claim against the builder (to have any defects fixed and paid for) under the HWI policy.  This is not totally correct!

While the HWI insurance policy does cover building defects it's only activated if a builder:

• dies
• disappears (and cannot be found)
• becomes insolvent - in others words, bankrupt and unable to pay

before completing the home or fixing the defects.

If none of these conditions apply, then the person(s) or entity wanting to have the defects rectified will need to go through other official channels such as the NSW Office of Fair Trading and the Consumer, Trader and Tenancy Tribunal (CTTT)) to resolve the issue.

TIP - The information sources mentioned in the Building Defects resulting from the Original Construction section above will help you with this if the builder is still around, is still in business and you need some defects rectified.  However, your strata managing agent (if you have one) can also prove to be quite invaluable in such circumstances to help steer you through the minefield.

If you do make a claim under the HWI policy then it might pay for you to look at the OFT's information pages covering the Home Warranty Insurance Scheme Board and the Home warranty insurance claims.  There's some really important 'must-knows' in both of these.

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Strata Title Terms and Jargon

If you need to know the meaning of one or more of the common terms mentioned above then have a look at the Strata Terms and Jargon Information page.

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