The Honest Person's Guide to formal Strata Maintenance Plans and associated Maintenance Funds
You are a simple suburban home owner who keeps your house and garden in fairly good order. When something breaks it gets fixed and if it’s an expensive failure you may need to save up to get the funds to pay for the repair.
Eventually you decide to sell and in readiness you do a little painting to freshen up the window frames and make sure everything is nice and tidy for the buyers’ visits. The buyer inspects carefully and may even get some professional help, but the object of the transaction, your house on its block is pretty well defined.
Now you are an apartment owner, one of a number in a large building. Like the suburban home owner you keep your unit in good order, fix faults as they occur, occasionally re-carpet or change the bathroom fittings.
You pay annual levies to the “management” to cover the costs of running the building, keeping it clean, paying for the man who fixes things and looks after the plants in the lobby, and you pay for light and power for the common areas. Your apartment looks alright, it's clean and tidy so the buyer when you come to sell should be pleased.
Now switch hats, this time you are the apartment buyer. The location is just what you wanted and the apartment is rather nice but you would like to see the Owners Certificate. You’ve been told that this will reveal any hidden problems with the building that contains this nice apartment.
Along with details of regular levies the required content of the Owners Certificate is intended to inform a prospective buyer of all likely expenses for future maintenance, any legal actions etc. The full requirements of a certificate are stated in Section 151 of the Owners Corporation Act. They sound comprehensive but are there expenses that even the apartment owner and probably the Owners Committee and manager don't know about?
Here is where the Maintenance Plan and Maintenance Fund come into play. Future maintenance costs can only be known if they are looked for, and the person best qualified to do the looking is a Quantity Surveyor. He knows or can work out the rate of deterioration of all of the elements of a building and prepare an estimate of when a repair or replacement could be required and at what cost.
To provide a few examples for 34 Union Street. We have an iron roof with an industry accepted lifetime before replacement could become necessary. The quantity surveyor knows this lifetime and the cost at the forecast future date. Add the Modwood decking, the balustrades, lifts, pumps and garage door each with a repair date sometime in the future and these future expenses become significant.
The statutory Maintenance Plan requires looking ten years into the future although good management would look further. In the case of 34 Union Street we have no formal plan and since we are in year ten of existence a formal ten year plan will be costed with the various components already having ten years of use and ageing.
The reason for not having a plan from start of life can be described briefly - it helps the sales process.
You are an investor with plenty of money and an opportunity to buy a block of land in a good position for a block of apartments is presented. In arriving at your decision to proceed or not you will deal with local government, architects, real estate companies, builders and as the project moves to the point where there are floor plans for the units, the discussions will include strata property experts with local knowledge about the services needed to maintain the building.
You, as the developer in conjunction with advisors will have carefully set selling prices for the various units and with the assistance of your strata manager have arrived at the annual levies needed to keep the building running. There is a clear reason to keep this annual expense as low as possible so don’t worry about the future, set the annual levy at the figure necessary to cover the running costs.
Compulsory Maintenance Plans have been introduced by governments to ensure that an owner in effect pays their share of the property wear and tear occurring during the period of ownership. 34 Union Street has avoided formal planning because the Victorian legislation sets the threshold for compulsion at stratas with 100 or more properties or annual levies exceeding $200,000. We are now teetering on the edge of the $200,000 figure. It should be noted that some other states set compulsion at 5 or more units and there is a likelihood that Victoria will move to 50 units.
We started life in 2011 with no formal maintenance planning and unaware of the incompetence of the builder, the deception of the developer and the expensive adventures ahead of us. These are not acceptable excuses for ignoring the future.
Still need to know more? You can look at the note written by Solutions in Engineering or our own look at the Victorian requirements.