Many new developments are currently sold off the plan. What that means is that a developer purchases land and, with the help of architects, designs a building that meets planning guidelines and restrictions. A strata management company is then often engaged at that early stage, to assist the developer in deciding how common property amenities can be built and managed.
Strata Communities Australia National President, Erik Adriaanse says a strata management company plays a major role in providing estimates of the costs in running an owners’ corporation.
“These estimates are based on quotes received from the suppliers of goods and services, including energy providers, cleaners, facilities managers, gardeners, pool maintenance and lift companies,” Erik says.
“This can occasionally be a bit tricky because there is a possibility that levies arising from the cost estimates may be more than the developer or project marketer has anticipated”.
“A developer may also seek alternative quotes using a tender process. This may be more palatable for the ultimate buyers than those provided by a strata management company, bringing the developer’s costs down and making the property more attractive to potential buyers”.
“However it is important that these estimates are prepared for the developer and the eventual buyers in a commercial and legally defensible manner.”
According to Erik, this means that, as well as being arguable, estimates need to be defensible in a potential legal dispute should a buyer not wish to proceed with the full settlement of the property.
“To complicate matters further, there
is often a need to make a preliminary estimate of the unit entitlement before an accurate assessment can be made by a quantity surveyor. This is done using the value of the units across the value of the development,” Erik said.
“Provided the plans are given Development Approval, the developer is then able to offer the units for sale. Units are often sold with a low deposit and full payment on settlement, enabling the buyer time to gather sufficient funds”.
“A recent legal opinion by Stephanie lynch from Meyer Vandenberg Lawyers outlines significant risks to developers were identified if the budgets included in Contracts are not ‘based on reasonable grounds’ . These were:
1. The developer’s financier refusing to finance the development (given the risk of cancellation of the contract by the buyer;
2. Buyer actually pursuing claims for damages or cancelling their contracts prior to settlement; and/or
3. The Executive Committee increasing the budget either at or shortly after the first annual general meeting causing reputational risk and associated aggravation towards the developer on other matters including rectification of defects,” Erik said.
“As the National President of Strata Community Australia, I want to highlight the importance of developers avoiding strata managers who underquote, because it will eventually be to the detriment of future owners and their investments,” Erik advised.
Erik says there may be circumstances where market conditions change and prices fluctuate irrationally, or there are extenuating circumstances that lead to cost overruns.
“Legitimate cost fluctuations can occur when a project takes considerably longer to come to completion and initial estimates become out of date,” Erik explained.
This is just one of the many ways Strata Community Australia is working with all parts of the building industry to continuously improve standards in strata management and provide better outcomes for all involved.
Erik Adriaanse (FCPA) (FPS)
National President and Director
Strata Community Australia Limited
Strata Community Australia Limited (SCA) is the peak industry body for Body Corporate and Community Title Management in Australia. Membership includes body corporate managers, support staff, committee members and suppliers of products and services to the industry. SCA proudly fulfils the dual roles of a professional institute and consumer advocate. SCA has in excess of 3,300 members who help oversee, advise or manage a combined property portfolio with an estimated replacement value of over $1.2 trillion.