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Aussie’s Smart Strata Resolve

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Quite often, we would and should emulate what works.

The surge of preference for holiday-let-homes in the 1960s, particularly the Gold Coast, Australia, might have been spawned by the lack of hotel space to accommodate the holiday goers’ demand. But more than that, an industry of on-site managers has grown, and with it a profitable business of buying and selling of building management rights. And with the fast evolving real estate format from just single titled developments to the multi-faceted stratified properties, no one can discount the importance of these stratified properties being well managed, both fairly and equitably.

Similar to what we have here in Malaysia as managing agents are strata title managers (strata managers) who are experienced and equipped to undertake the day-to-day tasks of the Body Corporate (BC).

What owners may find lacking in the skills to maintain and manage the strata property, strata managers will have the necessary expertise to see to it that the levies are collected, committee meetings and Annual General Meetings are arranged and the financials of the BC are properly accounted for, as such the preparation of day-to-day administration budget and the Sinking Fund.

And strata management and management rights expert like Michael Silver appear onset at the embryo stage of the development when the plans are being drawn back in Australia itself.

According to him, problems and future disputes can be curtailed with the solutions rightly implemented from the start. Issues like common utilities and unit entitlements are some causes of disputes in strata title management, especially in mixed developments, notwithstanding the complexity in preparing the budgets.

In previous property developments he had consulted, Michael had insisted that each component get their own separate meters to distinguish the volume used and that they were paying according to their actual usage. Thus, by getting the consultants onset at the planning stage, it ensures that the electricians and consultants know what is or are required, he explains.

While each entity would have a separate budget to cater for the use of their own common areas, they each would have to pay to the overall BC for the maintenance and upkeep of the main common areas such as the main access leading to the development or basement.

To calculate the portion of unit entitlement, Michael has his own formula to ensure that the apportionment is equitable. A consultant for CRE Silver Consulting (M) Sdn Bhd now, he states that in the past, there had never been a single case of entitlement disputes won against them and their Bodies Corporate in courts.

The on-site building manager on the other hand, buys the opportunity to come in and manage the building, he says. Due to the nature of many strata titled apartments turned holiday homes, there is a need to have an on-site manager to look after the day-to-day running and the lettings of the building.

On-site managers make their money from the fees obtained from the BC for maintaining the common property and a percentage of the rents of homes that owners want to let out, he adds.

The management rights come in 10- and 25-year contract for residential properties and holiday-let-homes (more than 50% of units are let out for this purpose) respectively makes it not only profitable, especially for holiday-let-homes, but also ensures what needs to get done in order for these building managers to receive their payment, he continues. Here, they can either undertake this solely under a dual contract or take on a supervisory role by employing outside companies to do the upkeep.

Interestingly, each state would have their own jurisdiction where some allows strata managers to operate with or without a license. If without a license, managers are required to take up insurance but it is not mandatory, he says. It is not encouraged as Michael does not approve the issuing of checks. While strata managers ensures that everything in the property has been and accounted for, the responsibility of approving outgoing payments still ultimately falls back to the BC. In other words, only the committee in the BC can issue checks.

Aussie Style

Transparency has always been important factor, and one way to effect it is by having the accounts audited by international accounting firms. Although it is not mandatory, he states, this is one sure way to protect strata managers that all incomings and outgoings received and paid on behalf of the BC are approved by the committee of BC themselves. This is done in a yearly manner so that all accounts are audited and ready by the next Annual General Meeting, he adds. Such will dispel conflicts and suspicion of how the monies collected are being used.

However, problems still remain the same anywhere when you deal with people and with money. How do you enforce the timely collection of maintenance fees without cutting off the supply of water and electricity of the units? Something Malaysia does not have according to him is through the implementation of the levies.

In Australia, when owners pay their dues on time, they are entitled to a discount, he says. “What strata titled managers are allowed to do is to impose an additional 25% to the fees. If it is paid on time, owners get a 20% discount on the charges.”

Still, if dues aren’t paid, an additional 2.5% interest will be charged. “That, owners will be hit by a double whammy.”

He adds, a unit owner pay between AU$3,000 to AU$20,000 per year in maintenance fees.

The issuance of strata title is just as swift. According to this veteran, it only takes two to three weeks for the strata titles to be issued to accompany the sale. Once the building is near completion, usually when the roof is completed,
the surveyor will prepare a strata plan of subdivision for every floor to be submitted at the strata titles office. Once strata titles are registered, the developer can then effectively settle their sales.

In contrast to Malaysia, when purchasers buy off plan in Australia, they are only required to pay 10%. And this 10% does end up in the developer’s account but is held in a trust account where it will only be released with the rest of the funds when the titles are issued, he illustrates, stating that no financial institution in Australia will lend any money without physical titles.

And in buying off plan, he states that purchasers are given full disclosure in the contract of sale to all the agreements as to what the predicted expenses would be when the building is ready.

Issues in the strata titled management are nothing new anywhere in the world, and Australia is not an exception. But first and foremost, the Land Down Under has a legislation that is consumer orientated and user-friendly, Michael says. As real estate format transforms, it is hoped for a better management of stratified buildings, all encompassing, for accountability, transparency and livability.

Who’s Michael Silver?

He has been in the business since 1973 where he assisted in the development of The Strata Title Managers Institute of NSW. His company was also the first in Australia to computerize the Strata accounting system which marked the start of the strata computerization that is now used in Australia.

Some of the developments that he has consulted for are the Surfers Beach Resort, Sanctuary Gardens, Belle Maison and Chevron Renaissance.

From 2000 to 2007, he was invited to comment on the paper being put before the English Parliament to introduce the Common Hold legislation to the UK, and was invited to speak on Australian Community Management by the Community Associations Institute in USA.

He is now the consultant for CRE Silver Consulting (M) Sdn Bhd and was a Founding Partner and Director of
Stewart Silver King and Burns, a Community Management Company that provided advisory services to developers and their professional consulting teams, as well as to bodies corporate, before it was sold in 2007.

It works in Australia!

  • Increase of 25% on top of existing levy to ensure timely payment
  • Entry of consultants at the embryo stage of the development
  • Separate budgets for each component (residential, commercial, etc) on top of the existing overall Body Corporate
  • Having each component to install separate meters in mixed development to ensure charges are according to usage
  • Audits made to accounts to ensure accountability and transparency
  • Fast issuance of strata titles
  • How it came about in Australia?
  • Before the Strata Titles Act was devised in 1963, the Company Titles was in effect. The Company Titles are shares issued that gave rights to the shareholder to use the particular flat. As such, to obtain financing is difficult. It has a restrictive means of ownership where the directors will have to approve the sale, the decision to let out and its tenants as well. Each state will have its own jurisdiction governing strata title management.
  • Say that again?
  • Unit Entitlement The percentage of hold you have of the property. It determines the amount of maintenance fees that each owner has to pay. Body Corporate Refers to Management Committee in Malaysia