A presentation to Strata Inspectors and Managers 14 June 2011

1. The
Truth
About
Strata;
what
purchasers
really
need
to
know.
Part
2
Is
The
OC
Financially
Sound?
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

2. Because
nobody
likes
surprises?
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

3. RevisiIng
a
building
somewhere
• 15
res
apartments
• Part
of
a
mixed
use
stratum
(separate
OC’s)
• Balance
commercial
and
retail
lots
• Onsite
management
• Res
OC
levies
$1,550
per
quarter
• 4
years
old
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

4. Are
the
savings
in
line
with
the
plan?
Year
Plan
Reality
Compliance
2007
-­‐
-­‐
2008
-­‐
$
20
000
2009
-­‐
$
30
000
2010
$
44
572
$
26
000
(under
41.6%)
2011
$47
742
-­‐
Balance
end
2010
$87
358
$
61
249
(
short
$
26,107)
(
29.8
%)
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

5. Are
defects
covered
by
the
budget?
• Reasonable
steps
• Best
endeavors
• Reasonable
care
…
All
fail
the
test
of
strict
liability
for
repair
and
maintenance
of
common
property
in
NSW;
Seiwas
case.
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

6. Are
the
levies
too
low?
• AdministraIon
fund
goes
into
deficit
Deficits
Neglect
• Sinking
fund
not
expended
“just
in
Ime”
• Sinking
fund
balance
short
of
plan
Crisis
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

7. Is
the
administraIve
fund
budget
correct?
• Provision
for
bad
debts
and
recovery
costs?
• Watch
for
rampant
increases
for
electricity
and
insurance
• Look
for
a
small
surplus
each
year
of
about
10%
of
income
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

8. Is
the
sinking
fund
budget
realisIc?
• Following
the
sinking
fund
plan
+
/
-­‐
10%?
• Spending
according
to
the
plan?
• Saving
according
to
the
plan?
• Not
having
a
plan
is
negligence
• Not
following
the
plan
is
negligence
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

9. Are
levy
arrears
within
benchmark?
$
Levies
>
90
days
Annual
admin
budget
No.
months
YTD
/
12
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

10. What
the
arrears
rate
means?
Delinquency
performance
Performance
Guide
ra6o
0%
This
mob
are
all
over
those
levies!
But
don’t
assume
this
rate
will
last
for
ever
–
hard
Imes
hit
owners
5%
Not
bad
–
this
is
the
average
–
this
is
a
well
run
OC
within
striking
distance
of
out-­‐performing
the
industry
10%
Warning
bells
–
this
is
too
high
and
the
commijee
should
be
asking
hard
quesIons
about
the
strata
manager’s
recovery
processes
(or
lack
thereof)
15%
+
This
building
is
in
strife
–
this
will
involve
some
serious
commijee
ajenIon
to
pull
back
from
here
-­‐
if
you
get
on
the
commijee
you
will
have
to
collect
debts
and
re-­‐educate
your
owners
immediately
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

11. Developers’
hate
paying
levies
• Strata
managers
can
be
sok
on
developers
• Serious
arrears
puts
financial
pressure
on
the
remaining
owners
• Consider
winding
up
proceedings
that
will
come
to
the
ajenIon
of
the
developer’s
bank
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

12. Signs
of
good
levy
management
1. Measurement
of
delinquencies
2. Wrijen
levy
collecIon
policy
in
place
3. Policy
followed
consistently
4. Interest
charged
on
outstanding
levies
5. Discount
offered
for
early
payment
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

13. Are
there
hidden
tax
liabiliIes?
• Income
tax
ruling
2505
• Strata
enIIes
are
treated
as
‘public
companies’
• Taxed
at
corporate
rate
of
30%
NOT
• Taxed
as
a
‘for
profit’
company
• Principal
of
mutuality
applies
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

14. Tax
is
not
assessable
on
mutual
income
• ‘One
cannot
make
a
profit
out
of
oneself’
• Where
there
are
idenIcal
contributors
and
parIcipants
in
surplus,
there
is
not
assessable
income
• Can
apply
to
strata
enIIes
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

15. What
is
mutual
income?
• AdministraIve
fund,
sinking
fund
and
special
levies
• Rent
by
a
lot
owner
for
common
property
• Interest
for
late
paid
levies
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

16. Examples
of
non-­‐mutual
income
ie
assessable
• Interest
from
a
bank
• Access
fees
from
non
owners
eg
occupants
• Rental
income
from
external
parIes
• Profit
on
the
sale
of
assets
to
external
parIes
• Fees
paid
on
the
transfer
of
management
rights
where
the
rights
are
held
separately
to
the
manager’s
lot
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

17. Have
the
expenses
been
apporIoned?
Non-­‐mutual
income
ApporIonable
Total
income
expenditure
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

18. Mobile
phone
carrier
installaIon
• Licence
fees
paid
by
external
party
• Strata
scheme
registered
in
NSW
• Common
property
held
as
agent
• Income
assessable
in
the
hands
of
the
individual
owners
–
not
assessable
to
strata
enIty
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

19. Development
and
sale
of
common
property
• Common
property
developed
to
produce
new
penthouse
lots
in
NSW
• Common
property
is
vested
in
the
strata
enIty
as
agent
for
individual
owners
• CGT
provisions
should
apply
to
individual
unit
holders
• Income
assessable
to
individual
unit
holders
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

20. Selling
solar
generated
electricity
to
defray
levies
• Recent
private
ruling
1011739693623
• Generates
assessable
income
• Associated
costs
are
deducIble
expenses
• Individuals
pay
tax
not
the
strata
enIty
• No
GST
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

21. Strata
Inspectors
AssociaIon
• AssociaIon
incorporaIon
• Emailing
list
prepared
• Code
of
ethics
agreed
• Website
under
construcIon
• Free
legal
advice
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

22. Join
us
for
our
next
live
seminar
Are There Building Defects?
Tuesday
13
September
2011
7.30am
–
9.15am
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au

23. About
the
presenter
Michael Teys is the Founder and Principal Lawyer of TEYS
Lawyers. He has a Bachelor of Laws and practices exclusively in
the area of strata title law. He is a Fellow of the Australian College
of Community Association Lawyers. He was formerly an Adjunct
Lecturer with Charles Sturt University. He appears weekly on SKY
News Business Channel's Property Success with Margaret
Lomas and is a regular panellist for the property edition of Your
Money, Your Call for the same channel. You can find out more
about Michael at www.michaelteys.com
Teys Lawyers practice nationally in strata title law representing owners corporations,
bodies corporate and apartment owners. The firm’s practice groups include building
defects, strata community disputes, strata titles property law, by-laws and levy collection.
Subscribe for their free e-newsletter StrataSpace and find out more about them at
www.teyslawyers.com.au
©
Copyright
2011
Teys
Lawyers
www.teyslawyers.com.au