Understanding body corporate disclosure statements
When buying an apartment or townhouse, there are additional factors you need to consider to make an informed decision when buying into a Community Titles Scheme. A body corporate disclosure statement is a legal document which outlines the levies and proposed works in the complex that you will be liable for, should you purchase the property.
Annual contributions and levies are paid by each owner within the complex and contribute towards the joint expenses of the building. This can include maintaining the communal areas such as pools, gyms and gardens; paying the building insurance, and repairing any damage to common property not covered under insurance.
The body corporate disclosure statement forms part of the contract of sale in Queensland and should be provided by the seller. As a buyer, understanding the disclosure statement is important but it can also be difficult to interpret if you have not dealt with a body corporate situation before.
Here, we have broken down the key components of a disclosure statement and what to look out for as a buyer.
The administrative fund is used for regular maintenance and everyday expenses incurred with running the building. This may include:
- building insurance (sometimes this could be an additional levy)
- building and pool maintenance
- gardens and grounds maintenance
- body corporate management fees
- common property electricity
- pest control
- regular fire servicing
- additional expenses which have been agreed upon
Each year the body corporate committee will prepare a budget, detailing the contributions the owners should expect for the following financial year. A healthy administration fund will adequately cover the building’s expenses and provide reasonable spending for the forthcoming financial year.
The sinking fund, or piggy bank as I like to call it, is used to acre funds to be used for capital expenditure and non-recurrent items. This may include:
- internal and external painting of the building
- replacement of the roof if not covered under insurance
- replacement of lifts
- replacement of common area carpeting
- replacement of pool equipment and pool refurbishment
- replacement of fencing
- acquisition of amenities for the benefit of the owners
The body corporate committee is required to have a 9 year sinking fund forecast in place to accommodate these bigger expenses which will be incurred over time. Building up the sinking fund reduces the likelihood of having to ask owners to make a large, one-off levy payment to cover any emergency items.
Each year, an Annual General Meeting is held by the body corporate committee to discuss budget forecasts, building improvements and changes to owner contributions. When an owner decides to sell their unit or townhouse, the body corporate disclosure statement will summarise the key points of the last AGM minutes.
As a buyer, the AGM minutes provide an insight to the condition of the building, outlining any upcoming repairs which have been agreed to and noting items which could require observation.
Complete transparency instils confidence in the buyer as they can see if the upkeep of the complex is well managed or not, and if the administrative and sinking funds are being used responsibly.
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