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"If you have money invested in a Strata Title Property, 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 with the help of the Capital Works Fund.  Prior to the latest round of legislative changes, many schemes were happy to ignore this vitally important part but now they can't.
Read on to find out why."

WARNING WARNING
Everyone is still trying to come to grips with exactly how the NEW legislation changes (that came into effect on Nov 30, 2016) will affect our strata lives and some companies may be a little slow changing some of their webpages, forms and articles to reflect the new laws.

So please be a little patient if some of the links I give you refer back to some old legislation or have simply disappeared.

I have to have SOME faith so I'm hoping most will update their info as soon as possible. Eventually everyone will be on the same page but it could take just a little time.  Just know that I will be keeping my ear to the ground for changes...and that I will do my best to fix what I can as soon as I can.

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STRATA PREVENTATIVE MAINTENANCE



The Benefits

To identify, correct and maybe even avoid deterioration of your valuable asset (i.e. your strata property), a Preventative Maintenance Program (PMP) for what is known as 'Major Works' should be discussed with your Strata Manager (if you have one) and all the owners - and implemented as soon as possible.

Under current legislation, this is officially called the 10-year Capital Works Fund Plan - which is discussed in more detail further down this page.  Now, the slack or lethargic owners corporations which virtually ignored the setting aside of funds to cover these big ticket items MUST have a 10-year Capital Works Fund Plan IN PLACE AND AMENDED or ADJUSTED EVERY YEAR.  And it's about time too.

SOMETHING IMPORTANT TO NOTE - I am not talking about fixing a leaking tap in the gardens or fixing the mailbox latch that suddenly refuses to open or repairing the TV antenna on the roof because a pelican flew into it last week and broke it......I'm talking about the BIG Ticket Items that will come around on a cyclical or semi-cyclical basis.  These smaller items are covered in more detail in the Ongoing Maintenance and Repairs information page.

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Problems that can be avoided

A poorly maintained building can also create a lot of 'unpopular' problems in the future.  Hopefully, this will become less of an issue as time goes by (due to the legislative changes made in the Strata Schemes Management Act 2015), but things CAN be missed and emergencies DO crop up when least expected so a "buffer" should be built in for those contingencies.

Here are just a few of the consequences of NOT having enough funds to handle whatever comes up:

  • 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 - usually involving greater costs
  • prospective purchasers may look elsewhere when they discover your scheme's Capital Works 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

Who's responsible?

Ultimately, it's the responsibility of the Owners Corporation to look after all aspects of the Common Property of the Strata Scheme - which means it becomes every owner's responsibility as the Owners Corporation comprises each and every owner!  If you're having trouble working out what IS and what ISN'T Common Property then make sure you have a look at my Ongoing Maintenance & Repairs information page which covers the area of Who's Responsible.

As part of the Owners Corporation, it's up to you to ensure a Capital Works Fund Plan is firstly OK'd (through the Annual General Meeting 'agenda/motion' mechanism) and then actually put in place and actioned.  It's now the law...

And remember:  It's YOUR money you're protecting so make sure your valuable investment has a viable 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 about your car....if you don't service it regularly, what eventually happens?

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

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

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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 Capital Works 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
  • balcony repairs
  • 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
  • pool resurfacing
  • carpet replacement in the stairwells
  • common property painting and maintenance
  • installation of window safety devices

Improving your Strata Scheme

For older buildings, consideration should also be given to updating your scheme to improve its appearance and value by:

  • rendering the building's fa├žade
  • renovating the foyer area
  • upgrading the landscaping
  • replacing the balcony and stairwell railings with a safer, more modern design

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 definitely worth having a look at.

Interestingly, Lannock decided to take this PDF off their site and replace it along with a lot of other useful stuff. Luckily I managed to salvage it (before it disappeared into 'internet oblivion') and load it to our server.  The info is still very relevant so it was a little disappointing they got rid of it.  They do have a new site with lots of good stuff but I couldn't find these datasheet-style PDFs anywhere.

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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Alternative ways to pay....

Many Strata Schemes, for a variety of reasons, may find themselves in the position where money is desperately needed to pay for essential repairs or renovations but the bank account is 'bare'.  Now, when this situation occurs there are a couple of options open to the Owners Corporation including:

  • Don't do anything and wait till enough funds have been raised from future levies (not recommended)
  • Raise a Special Levy so the works can be completed (not very popular)
  • Raise the funds via a Strata Finance loan

While the idea of taking out a loan may seem abhorrent to many, it might just be the best (and sometimes ONLY) solution to ensure the work actually gets done before the problem gets any worse and more than likely resulting in a 'cost blowout'.  If left unchecked, and the problem involves WH&S safety concerns, it could develop into something even worse - litigation due to negligence - and no one wants that.  Yes, interest on the loan must be paid but at least the necessary works are done, the dreaded Special levy is avoided and everyone is safe from harm.

To get the full rundown on this 'ever increasingly popular' option, read my information page on Strata Finance Loans.

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Capital Works 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 Capital Works Fund (CWF) - 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 capital works fund the complex will ultimately deteriorate negatively affecting the market value of every owner's property.

Before the latest round of legislation came into force on Nov 30th 2016, not all schemes allocated enough funds - and in some cases nothing at all - to this vital component to keep levies to a minimum.  However, they were just delaying the inevitable and, in many cases, the dreaded "Special Levy" had to be raised to pay for the item or items that eventually came up for replacement or repair.

This problem was seen as major by the industry as a whole and so the SSMA 2015 addressed this by making the CWF Plans compulsory for all strata schemes with the exception of some 2-lot schemes.  See Section 74 - Part 5: Exemption of the SSMA 2015 for the 2-lot scheme exemption.

The legislation also requires that the Owners Corporation MUST review the CWF Plan in FULL at least every 5 years and that the plan MUST be discussed (i.e. it must be on the agenda) EVERY year at the Annual General Meeting - some items may need to be adjusted or added or removed.  Scroll down for Schedule 1 - Point 6: Required items of Agenda for AGM of the SSMA 2015 which spells it out.  IMO, this is definitely a step in the right direction.

NOTE: Have a look at your levy notice and see what portion of the money you pay each quarter is being allocated to the Capital Works Fund.  Thankfully the incorporation of a CWF Plan now makes it a simple case of "Budgeting 101" - and as long as the estimates in the plan are accurate, most schemes should no longer get into too much trouble down the track.  Sadly, for those schemes where the CWF was either tiny or non existent, the levies to be paid by those owners will have to increase.  I hope your scheme is NOT one of those.

Capital Works Fund Plan

Essentially, everything that can breakdown, wear out or deteriorate over time should be identified and included in the Capital Works Fund Plan (CWF Plan).

This CWF plan will contain:

  • details of the proposed work to be carried out
  • the timing and costings of the work proposed
  • how the work will be funded
  • any other relevant information

This is vitally important as the CWF Plan will play a big part in determining how much has to be allocated to the Capital Works Fund from each levy payment received.  You can read all about the requirements for the CWF Plan in Section 80: OC to prepare 10-year CWF Plan of the Strata Schemes Management Act 2015.

A Capital Works Fund Plan 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 and workable Preventative Maintenance Program to suit your scheme.  It'll also advise you as to what capital works fund levies should be paid to ensure sufficient funds are available when work is needed.  The time frame (according to legislation) for these "plans" covers a 10-year period with a FULL review to be done every 5 years.

VERY IMPORTANT: Every Capital Works Fund Plan should also include an amount for "unexpected" events (i.e. an "emergencies" fund).

Do you want to see a few simple guidelines for getting a Capital Works Fund Plan done?  Well, Lannock Finance have produced a quick reference guide on sinking funds (using the OLD terminology) called "Getting a good sinking fund plan" that makes a lot of sense.  Just read "Capital Works Fund" wherever you see "Sinking Fund" as the 9 points discussed are all still VERY relevant today.

This PDF was also 'dropped' by Lannock's in the redesign of their site but my salvage operations extended to this one as well so all of you out there don't miss out.  I could have easily just rewritten it but I believe in giving credit where credit is due - so the original stays.

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Building Audit

A Building Audit is similar but separate to the Capital Works Fund Plan 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 Capital Works Fund Plan.  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 seemingly 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 some other 'difficult to remove' vermin.  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 eradication, repair and rectification work that must be done.

This is just another simple example of false economy exercised by a well-meaning but misguided Strata 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

My information page on Common Property Pest Inspections goes into a few of the compliance requirements - so check it out.

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WH&S Audit or Safety Audit

The provisions of the Work Health & Safety Act 2011 and the Work Health & Safety Regulation 2011 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 commonly known as a Safety Audit or a Work Health & Safety Audit.  Once notified, the Owners Corporation MUST address the risk(s) and repair the common property as required. Failure to do so can result in severe penalties.  Don't say I didn't warn you.

Public Liability Insurance requirement

A regular and ongoing assessment of risk is also necessary to provide evidence to the public liability insurers of the proper management of the common property in the event of a claim.  The minimum cover is currently $20,000,000.
See NSW SSMR 2016: Regulation 40 - Insurance amount.

Some more information

Safework NSW have a huge section on Work Health and Safety (WHS) which offers helpful summaries, information pages and even a link to the legislation changes which came into effect on Feb13, 2015.

Another section Safework NSW has is the one on on Strata Title Body Corporate - Employer obligations which discusses the WHS requirements for strata.  So, if you need to know about Work Health & Safety and all it entails (plus details of the latest amendments, this is a fantastic place to start.

TIP - If you DO go onto the Safework NSW homepage, don't forget to have a good look in the navigational menu across the top. There's lots of sub-menus under the main menu tabs.  Just hover your mouse over any of the tabs and the bigger submenus will open up.

Should you spend the money?  Again, it's far better to get anything fixed that needs fixing as soon as possible rather stalling or not doing it at all and then having to deal with the severe consequences, courtesy of a letter from a friendly litigation lawyer, if an 'accident' happens.  Only then do you discover that your scheme violated one or more Work Health & Safety requirements thereby leaving the Owners Corporation liable for any litigation claims (and fines) that may surface.  Besides having to deal with the lawyers, you'll also have Workcover breathing down your neck gunning for a prosecution.  Is it really worth the risk to delay things or, heaven forbid, not fix them at all?  Absolutely no way in the world.  You could be putting someone at risk of injury or worse, as well as breaking the law.

If you're on a Strata Committee and totally lost and don't know what to do - then talk to your Strata Manager who can point you in the right direction.  Now, if there's NO strata manager to fall back on (for your self-managed scheme) then all I can suggest is to try a bit of 'googling'.

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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 Managers 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 green links below.  But remember - consult your Strata Manager 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 FT (NSW Fair Trading) which also has a link to a section dedicated on how to lodge a complaint.  Very helpful.

And for even more FT 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.

And still yet another couple of gems from NSW Fair Trading:

TIP - Keep in mind there are some critical timing constraints on warranty periods and how long you have to put in your claims - anything from 6 years for structural defects and 2 years for other types of defects.  These time frames can even vary a bit depending on a number of other factors but all the details are in the documents I have pointed you to - so make sure you read them.  You've been warned...

Still some confusion...

However, there still tends to be some confusion regarding exactly where Home Warranty Insurance (HWI) fits into the 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 Home Warranty Insurance policy does cover building defects it's only activated before completing the home or fixing the defects, if a builder:

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

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 Fair Trading and the NSW Civil & Administrative Tribunal (NCAT) to resolve the issue.

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

For an even more detailed report on Home Warranty Insurance and all that it entails make sure you have a look at my Home Warranty Insurance page.

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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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DISCLAIMER:  All information on this website is of a general nature and is intended as a guide only.  Readers should check all information obtained from this website for accuracy from other sources and seek professional legal advice before taking any action based on any information obtained from this website.  Information on this website should not be substituted for proper legal advice.  The owners of this website will not be held responsible for any action taken as a consequence of same.

EXTERNAL SOURCES:  The owners of this website do not make any warranty or representations regarding the information, products, services provided by or qualifications of any external sources listed on this website.  Readers should make their own appropriate enquiries regarding accuracy, qualifications, licences, etc.  The owners of this website will not be responsible or liable in any way for any representations made by any external sources listed on this website.

IMPORTANT NOTE:  This website deals with strata matters in NSW, Australia only.  Legislation varies in different states and territories and in other countries.  For information pertaining to places outside of NSW, Australia please refer to the appropriate legislation for your region.



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