Category Archives: Strata

Industry Market Wrap

Based on ABS data released this week, a surge in construction activity commenced over the September quarter with the total value of work completed increasing by 12.5%. Most of the rise was driven by engineering works (up 22.6%) while the building sector saw an increase of just 0.6% in value over the quarter. Looking deeper into the figures, residential construction hasn’t seen any of the improvement with the value of construction work down 1.1% over the quarter and 3.9% lower over the year. The stronger than expected construction figures highlight the two speed nature of the economy. The value of engineering work (mostly attributable to the resources sector) was up 22.6% over the quarter and 48.9% over the year while construction activity across the non-resources sector remains pretty much flat.

The RP Data-Rismark Home Value Index results for October 2011 will be released on Wednesday of next week. The results, which will reflect market conditions pre-rate drop, are likely to see a continuation in the weak trend that has been evident since the start of the year, however recent months have seen value declines leveling. In October, consumer confidence was still low, together with a high volume of stock available for sale, low auction clearance rates and interest rates at an above average level which suggests more of the same conditions. Given that October was the last month in which official interest rates were at 4.75% before the 25 basis point cut in November, the next few months of data will be interesting to analyse to see if volumes or values show any improvement.

Thank you to R P Data for this Article

Housing and Occupancy Costs

The Last week the ABS released the results of their 2009/10 Housing and Occupancy Costs Survey which had some very interesting findings pertinent to the housing market.

Last week the Australian Bureau of Statistics released detailed results of their Housing and Occupancy Costs Survey for the 2009/10 financial year. The release has lots of good quality data relating to the household sector with the most significant finding being that renters pay a larger proportion of their income on housing costs than those with a mortgage.

The average housing costs in 2009-10 were lowest for owners without a mortgage who paid an average of $35/week in housing costs, ranging from $30/week in Tasmania to $44/week in the Australian Capital Territory. As these owners have paid off their homes, these costs are likely to relate to: rates, electricity, utilities charges and maintenance costs. Across the nation, owners without a mortgage were spending just 3.0% of their gross income on housing costs.

Owners with a mortgage were paying $408/week in housing costs with $35/week attributable to occupancy costs and $373/week dedicated to paying the mortgage. Mortgage holders in Tasmania paid the lowest amount ($279/week) while mortgagees in the Northern Territory paid the greatest amount each week ($486). Across the nation, owners with a mortgage were spending 18.0% of their gross income on housing costs.

Renters were typically paying $275/week towards their housing costs in 2009/10 across the country. The occupancy costs for renters are likely to be lower than those for mortgagees or those who fully own their home as rates and utilities are generally paid by the property owners. On a state-by-state basis there were much wider variations in these costs ranging from $178/week in Tasmania to $323/week in the Australian Capital Territory. Across the nation, renters were spending 20% of their gross income on housing costs which is a greater proportion being spent than those with a mortgage.

The survey results also showed that the vast majority of Australian’s were living in a house which they either owned outright (32.6%) or had a mortgage on (36.2%). Although 28.7% of homes were being rented, the figure ranged from 25.0% in Tasmania (the country’s most affordable housing market) to 39.5% with the Northern Territory.

Focusing on household characteristics, one family households account for the largest proportion of all households at 70.6% across the county. Interestingly, couples with dependent children (26.3%) and couples only (26.2%) account for an almost equivalent proportion of all households. Lone person households account for almost a quarter of all households (24.5%) while group households (3.3%) and multiple family households (1.7%) account for a small overall proportion.

Detached houses are still the dominant dwelling type across the country, accounting for 78.6% of stock with semi-detached properties (10.4%) and units (10.7%) each accounting for around 10% of overall housing stock. Separate houses are least prevalent in New South Wales (73.7%) and most prevalent in Western Australia (86.0%).

Across the nation and across all ownership types, just 5.5% of households are paying more than 50% of their gross income on housing costs. Without delving deeper into the results you’d anticipate that this would be the result of owners with a mortgage however, only 6.9% of owners with a mortgage spend more than 50% of their income on housing costs compared with 9.1% of renters.

Most measures of mortgage stress suggest that if you are spending more than 30% of your take home income on your mortgage you are in mortgage stress. The results of this survey suggest that in June of last year 23% of home owners were in a position of mortgage stress.

The results of this survey are quite interesting and it is disappointing that the ABS only undertakes the survey every two years. The most interesting finding is that renters are paying a larger proportion of their income towards their housing costs than those with a mortgage. This is reflective of the fact that mortgagees are typically earning more than those renting but it also highlights that as mortgage holders pay down their debt they are probably looking to refinance to pay less on their mortgage. This would have been increasingly occurring over the past 12 months with the volume of refinance commitments rising substantially.

The other particularly important finding which is inter-related was the fact that the vast majority of owners with a mortgage were paying less than 25% of their income on their housing costs (66.4%). On the other hand, only 6.9% of mortgage holders were spending more than 50% of their income on housing costs.

Thank you to R P Data for this Article

The Strata Managers Role in Owners Corporation Budgeting

Budgets must be prepared annually for the administrative and sinking funds: ss. 75(1) and 75(2).

Administrative fund budgets estimate how much money the owner’s corporation will need for Actual and expected expenditure:

To maintain in good condition on a day-to-day basis the common property
Personal property vested in the owner’s corporation
To provide for insurance premiums
To meet other recurrent expenses

Recurrent expenses includes regular expenses such as insurance excesses, water charges, electricity, carpet cleaning, lawn mowing and minor expenses relating to maintenance of common property. In budgeting for administrative expenses, strata managers need to keep track of any likely abnormal increases in expenditure. Recent examples include the exorbitant

The sinking fund budget is required to estimate how much money the owner’s corporation will Need for actual and expected expenditure for:

Painting or re-carpeting buildings or other structures on the common property
Acquiring personal property
Renewing or replacing personal property
Renewing or replacing fixtures or fittings that are part of the common property
Replacing and repairing the common property
Meeting other expenses of a capital nature

In estimating amounts to be credited to the sinking fund, an Owners Corporation must take into account anticipated major expenditure identified in the 10-year sinking fund plan required by s.75A. The idea of the 10-year plan is to force owners of the day to pay progressively for their use of the common property. The Act permits the owners corporation to engage expert assistance in the preparation of the plan but does not oblige the owner’s corporation to use an expert. A recent study has shown most owners do not use experts: Where plans are prepared externally and an Owners Corporation decides not to levy in Accordance with the recommended plan, there should be a good reason. Many sinking funds are underfunded and it is possible that a new member of an owner’s corporation might sue the owners corporation for not having properly funded their sinking funds before their period of ownership. Strata managers might be liable on this account as well.

Thank you TEYS Lawyers for this Article

The Strata Managers Role in Owners Corporation Finances

One of the basic responsibilities of an owners corporation is to raise and manage fees and to Keep track of its finances. A strata manager has an important role in assisting the owners corporation to budget for their expenses, levy contributions, collecting levies, spending the funds in an authorised way and accounting to the general meeting each year on finances.

Budgeting correctly for contributions to the administrative and sinking funds;
Accurately levying contributions to the administrative fund and sinking fund;
Collecting unpaid levies efficiently;
Expending funds only on authorised expenses; and
Preparing financial statements.

Thank you TEYS Lawyers for this Training Note

Work Health & Safety Act & Owner Corporations

WHAT IS THE WORK HEALTH & SAFETY ACT?

In an effort to create consistency in the occupational health and safety laws around Australia, the Commonwealth and each State and Territory have worked together to create the Model Work Health & Safety Legislation which is (or will soon be) adopted by each State and Territory to replace the State based occupational health and safety laws.

On 1 January 2012, the Work Health & Safety Act 2001 (NSW) (“WHS Act”) came into effect and introduced:

new obligations for all persons involved in a workplace (not just employers and workers);
added obligations on persons already regulated by health and safety laws; and
personal penalties for non-compliance.

WHAT IS A “PERSON CONDUCTING A BUSINESS OR ENTERPRISE”?

The WHS Act focuses around the concept of a “Person Conducting a Business or Undertaking” (“PCBU”). What does this mean?

Section 5 of the WHS Act provides:

“(1) For the purposes of this Act, a person conducts a business or undertaking:

(a) whether the person conducts the business or undertaking alone or with others, and

(b) whether or not the business or undertaking is conducted for profit or gain.

(2) A business or undertaking conducted by a person includes a business or undertaking conducted by a partnership or an unincorporated association.

(4) A person does not conduct a business or undertaking to the extent that the person is engaged solely as a worker in, or as an officer of, that business or undertaking.”

Practically, PCBU includes, amongst others, owners’ corporations, sole traders, unincorporated associations, incorporated entities, partnerships and community associations.

WHO IN A PCBU IS RESPONSIBLE?

The WHS Act imposes obligations or “duties of care” on a number of different personnel at different levels of a PCBU.

OFFICERS (which takes on a formal meaning as per the Corporations Act 2001 – ie, a director or person who has involvement in the decision making of the business etc) have an active duty to ensure the PCBU is compliant with its various safety obligations. They must proactively stay up to date on work, health and safety matters affecting the business and generate processes to be implemented for compliance with the obligations imposed.

WORKERS AND VISITORS of a PCBU each have positive obligations to take reasonable care for their health and safety whilst at the workplace and to ensure that their actions do not endanger others at the workplace. This is a shift from the old occupational health and safety laws which placed the obligations on the employer.

IS AN OWNERS CORPORATION REALLY A PBCU?

An owners corporation is exempt from the WHS Act to the extent that it is only responsible for common areas which are used for residential purposes only. This exemption however, may only apply to a very small number of owners corporations particularly where, for example:

it employs people and independent contractors to carry out work on the common property including repairs and maintenance works;
any of the lots or common property are used for non-residential purposes such as a commercial use (even home
offices or businesses), retail use (including shops and restaurants), exercise classes or gardening and other activities by owners; or
any easements are granted over the property for cable lines or drainage pipelines, etc.

As such, most owners corporations, the strata committee members, employees and consultants will be effected by the WHS Act.

IS AN STRATA COMMITTEE MEMBER AFFECTED BY THE WHS ACT?

One of the effects of the WHS Act is the broadening of the list of people who are responsible for work health and safety issues. One extension of this list is to strata committee members of owners corporations and the imposition of an obligation on them to exercise “due diligence”.

This obligation of “due diligence” includes a requirement to proactively understand the requirements of the WHS Act and ensure that the owners corporation has appropriate measures, plans and policies to comply with those requirements. This means that the strata committee members are required to:

keep relevant information on work health and safety issues on the common property and site;
understand the nature of operations being conducted in the building;
ensure that there are measures in place to eliminate (or at least minimise if elimination is not possible) any potential risks; and ensure that the owners corporation has systems in place which address and comply with the WHS Act requirements.

Pleading ignorance is not a defence to non-compliance for strata committee members.

ARE THERE EXEMPTIONS FOR VOLUNTEERS?

The WHS Act does however draw a distinction between paid officers and volunteers.

For paid officers, obligations to exercise due diligence must be exercised and significant penalties apply for a failure to comply. On the other hand, while volunteers are also required to comply with due diligence obligations, they cannot be penalised for failing to do so. They can however, be penalised for failing to make sure that their actions or omissions do not adversely impact the health and safety of others.

WHAT ARE THE CONSULTATION DUTIES?

The importance of consultation has been recognised in the WHS Act and has been implemented as a specific obligation on duty holders, that is, any person that holds a specific duty under the WHS Act. Under the WHS Act duty holders (with similar or overlapping duties) must consult, coordinate and cooperate with each other and also with workers. The Act sets out flexible ways in which the consultation may occur. Significant penalties can be imposed for breaches of this requirement.

WHAT IS THE REGULATORY BODY AND WHAT INVESTIGATION RIGHTS EXIST?

Union members holding a WHS entry permit may enter a workplace (or in the case of an owners corporation, a building or common property), to advise and assist with WHS Act compliance and/or when a contravention of the WHS Act is suspected. While 24 hours’ notice is required to be provided in the former case, the permit holders can enter without notice when a contravention is suspected. The PCBU must not refuse, delay or hinder the union permit holder. Owners corporations should implement a process to deal with permit holder entries.

WHAT ARE THE OBLIGATIONS REGARDING NOTIFICATION OF INCIDENTS?

Where a serious or dangerous incident occurs, the PCBU must:

notify the regulatory body; and
preserve the incident scene until an inspector attends or the regulatory body directs otherwise. The WHS Act sets out details of what constitutes a notifiable incident.

WHAT KIND OF FINES CAN BE IMPOSED?

The penalties imposed under the WHS Act are applied in accordance with a sliding scale which generally is as follows:

Category of Penalty	Owners Corporation	Strata Committee Member	Worker or other
Recklessness/risk of death or serious injury/illness	$3 million	$600,000 or 5 years jailor both	$300,000 or 5 years jailor both
Breach of Duty/risk of death or serious injury/illness	$1.5 million	$300,000	$150,000
Breach of duty	$500,000	$100,000	$50,000

The weight of the penalties reflects the significance of the obligations which are being enforced by the WHS Act.

WHAT CAN OWNERS CORPORATIONS DO TO ENSURE COMPLIANCE WITH OBLIGATIONS?

Some examples of measures that owners corporations may take to address the implementation of the new work health and safety laws include (but are not limited to):

assume that the owners corporation is a PCBU and that the WHS Act applies to the owners corporation – most owners corporations engage workers either as employees or independent contractors to carry out maintenance and repair works and at some stage will therefore, be a PCBU;
identify reasonably foreseeable hazards on the common property and site;
eliminate any risks and hazards identified as far as reasonably practicable or minimise the risks and hazards where they cannot be eliminated;
implement compliance WHS Act plans and procedures;
review and amend (if necessary) policies for new and existing strata committee members to ensure compliance with WHS Act;
educate the owners about the new WHS Act regulations and obligations;
make sure the insurances cover any additional risks imposed by the WHS Act – usually, office bearer’s legal liability insurance does not cover fines, penalties, punitive, exemplary or aggravated damages (always remember that no insurance can cover jail sentences);
re-visit by-laws to ensure that they adequately deal with WHS Act obligations including the implementation of incident reporting systems and obligations to immediately notify the strata committee members of potential risks and safety issues identified;
the holding of regular additional meetings of owners to discuss health and safety issues or concerns;
consider whether you should provide height limits for workers (both employees and independent contractors) to minimise the risk of falls; and
ensure that ongoing rules are implemented about vegetation management, storage of substances, maintenance of plant and equipment, induction of tradespeople, etc.

Thanks to Gavel and Page Lawyers for this article.

Park illegally – lose your home

You would think, of all the issues that plague strata dwellers, parking would be the easiest to resolve.

After all, a spot is allocated to you (or not) and you are allowed to park in it (or not). If only…

“We have new tenants in our complex who have two or three cars parked in visitors parking and a fourth outside their garage blocking another tenant from getting in and out of their parking area.

“I placed the following notice on two cars parked illegally for over a week: This Car is Parked in a VISITORS PARKING SPACE. Visitor Parking spaces are for the use of VISITORS of all residents We understand that on occasion, residents use these spaces for short periods of time. Please be respectful to all units by abiding by this. Please note – Parking cars on the grass is Not Permitted.

“The notice was removed from one of the cars, which driven out and returned to the same spot an hour later.” – Sarah C, via Flat Chat Forum.

Oh dear, Sarah. I think you blew it when you said it was OK to park in visitors parking ‘on occasion’ and Forum StrataGuru Struggler agrees.

“The problem here is that the note you left actually gives them and anyone else permission to park there – at least in their eyes,” he writes. “‘On occasion’ and ‘short periods of time’ are all tolerated in [my] complex but just not in writing.”

Struggler is right. You need to let them know that by parking in visitors parking or on grass verges they are:

a) in breach of by-laws and that could lead to fines of up to $550 and

b) by breaching by-laws they have also broken their lease which could lead to eviction.

Yes, they may think they are above the law but they could lose their home.

A copy of the same notice from your EC secretary should be delivered to the rental agent or owner of the property. And let’s hope your original note is already in the trash.

Thanks to SMH for the article

Sydney’s strata surprises

Rents rise by 13% in sought-after suburbs

Rents in Australia’s most sought-after suburbs have increased by up to 13 per cent in the last year.

Tenants are paying up to $60 a week more for accommodation than they were 12 months ago, according to figures released by RUN Property on Saturday.

Fairfield in Melbourne had the highest leap in rental prices (13.4 per cent), followed by Edgecliff in Sydney’s eastern suburbs (12.6 per cent).

These were closely followed by hikes of 11.7 per cent in the Sydney north shore suburb of Cremorne and 11.5 per cent in Surry Hills in inner Sydney.

RUN Property CEO Rob Farmer said 24 suburbs in Sydney and 18 in Melbourne saw rent increases of more than six per cent for new tenants in January, compared with the same time last year.

“The popular suburbs close to beaches, major shopping centres or train stations continue to go from strength to strength for investment property,” Mr Farmer said in a statement.

The average rent rise across Melbourne when new tenants moved in was 5.4 per cent, bring the average rent up to $383 a week.

In Sydney, the average rent increase was 7.4 per cent, up to $545 a week, while in Brisbane, rents rose by 3.3 per cent bringing the average rent to $346 a week.

Thank you Sydney Morning Herald for this article

New rules to protect kids in high-rises

Apartments and multi-storey homes are about to get a little safer for children thanks to a rule change around windows in new buildings.

The Australian Building Codes Board has ruled that all windows in new homes and apartments that are more than two metres off the ground must be either fitted with window locks that stop the window being opened more than 125mm (12.5 cm), or must have reinforced screens to prevent children from falling from a height.

The changes will be included in the National Construction Code from May 2013.

The Australian Building Codes Board estimates that owners and builders will choose to fit 80 per cent of windows with locks, and the remaining 20 with reinforced screens. Its research priced window locks from $20 – $70 each, and strong screens from $130 a square metre, putting the average cost of a suitable screen at $130.

Ron De Vere, a project manager with the Australian Building Codes Board, says the decision was made after wide consultation with industry, and with fire authorities across the nation.

De Vere said an economic analysis that took into account the cost of installing locks and screens versus society’s cost of treating children who had fallen from windows showed that the broader cost-benefit of the changes was around zero.

However, “the board was swayed by the risk to children and the danger of children falling out of buildings”, he says. “It’s a bit like the pool safety issue, the child drowning … the value of a child’s life is so crucial.”

Danny Cass, a professor of paediatric surgery at the Children’s Hospital Westmead, has welcomed the changes saying the recognition that children could access windows and easily climb or fall out of them was a win for commonsense.

“Before, they thought a kid couldn’t climb that high but … they often pull things up to it, or beds are placed next to it,” Cass says.

Just a like a pool safety fence though, children will only be protected when adults remember to lock the windows and check that the reinforced screens are in good order.

The board backed away from an initial proposal to mandate window guards for windows two stories or above in all domestic dwellings.

It also a decided against that a proposal to increase to one metre the minimum floor-to-sill height of openable windows in rooms that are four metres from the ground outside.

The minimum floor-to-sill height will effectively remain at 865mm as the current provisions require a barrier of 865mm be in place to any openable window that is more than four metres from the ground, and it is common practice to place the bottom of the window at that height, using the wall itself to create the barrier.

The floor-to-sill height requirement will remain even where a lockable or removable device or screen is in use – in case the device or screen is inadvertently unlocked or removed. However, the minimum height from ground level at which the window-to-sill or barrier rule comes into play will drop from four metres to two metres after evidence showed serious injury can happen when a child falls from just two metres.

The changes will come into effect from May 2013, a timeframe the board says will allow industry to prepare for the changes.

An average of one child a week is taken to hospital in Australia after falling from a window. According to figures from the Children’s Hospital Westmead, 80 per cent of children who have fallen from a window have significant injuries, and four out of five children who fall from windows are aged under five. For information on keeping your kids safe near windows. Cass says the next challenge is making windows in existing housing and apartment stock safer for children. Cass is part of a working party on child falls at the Children’s Hospital Westmead. The group will meet again this month to explore further recommendations for existing properties.

Thank you Sydney Morning Herald for this article

The Finances of Litigation

Financing any form of litigation is extremely expensive and building defect litigation is no exception. In fact, because construction defect cases often involve multiple rounds of testing and investigation, additional expert fees can make this one of the most expensive forms of litigation.

Using Reserves

By their nature, building defect cases tend to arise early in the life of a scheme when capital reserves will be low or non-existent. However, if there is money in the sinking fund, this can be used to finance litigation to the extent that the claim relates to repair, replacement, restoration or maintenance of major components for which the sinking fund was established.

Bank Loans

Some banks will lend money to strata schemes to maintain and repair common property but so far this has not extended to financing defect investigations and litigation. Owners corporations and community associations are not permitted to give security for such loans and this makes financing litigation difficult.

Solicitor’s Finance

Unlike the current trend in America, construction defect lawyers in Australia are unlikely to finance testing and repairs or other outlays like barristers fees because of the constraints in Australia on contingency or success fees. The practice of advancing money for outlays or extending credit for work in progress is fraught with conflicts of interest on the part of the lawyer in terms of being objective about the advice to the client when the lawyer has a financial interest in the outcome.

Thanks to Teys Lawyers