Select Strata Management
has now merged with StrataLiving
Answers to FAQ from Developers:
1. General Questions from developers:
SLBCM staff have worked with some of Queensland’s leading developers, and the project ‘mix’ has been diverse.
From mid-size to very large resort master plan projects, and some very innovative ‘mixed use’ urban product – we are used to working with project management and project development teams to tight timeframes in a collaborative atmosphere to help ensure the project is a success.
For development projects over 25 strata Lots we do not charge the developer any fees for performing all the analysis work and document preparation to arrive at Lot Entitlement Schedules, Budgets and Levies that his solicitor will need for inclusion in the sales contract documentation.
In addition to our work, the developer has a statutory requirement to have a Sinking Fund Analysis report and an Insurance Valuation Report prepared – we can arrange these reports and the combined cost is approximately $35/Lot – so if your development was 65 Lots, these reports would cost about $2,275 in total.
For developments under 25 Lots, we charge $1,500 – and in addition there is the cost of the reports mentioned above.
When we have received everything we need in the way of drawings, details on aspects of the buildings, selling prices, the Sinking Fund Analysis report and the Replacement Insurance Valuation etc., we can usually complete our work in a couple of days and forward the results to the developer’s solicitor ready for inclusion in the sale contract documentation.
2. Timing – what happens when?:
This is a very easy one to answer – the earlier the developer sees us the better!
Even if a development is fairly small and is basic in the titling structure, it is better for us to meet briefly with the developer and review the project – then following on from that meeting the interfacing can be done via e-mail and phone.
With a larger development, or one that is somewhat complex or innovative, or both, it is critical that the titling structure i.e. how the subdivisions are done, if there are multiple Schemes, what the arrangement of the Schemes is to be, how different uses in the completed development are to be catered for, etc. all these matters can become quite complex, and what often makes it complex is attempting to arrive at what is the optimum arrangement and titling structure.
Apart from liability issues for the developer if very poor decisions are made, settling on the optimum arrangement often means that the developer has both a good outcome and the best options available as the project progresses. In addition, if a poor structuring arrangement is chosen it can have both a negative impact on sales and lasting adverse effects for the owners in the development.
Typically, and simplistically, the major steps in the sequence would go like this:
(a) initial project feasibility;
(b) preparation of preliminary architectural drawings getting ready for submission to Council for Development Approval;
(c) DA granted;
(d) Preparation of Contract Documentation for off-the-plan sales;
(e) Work proceeds on the architectural drawings for Building Approval submission;
(f) BA granted;
(g) Operational Works;
(h) Building works commence;
(i) Practical completion;
(j) Council issues Certification – Dept. of Natural Resources issues Titles (and if there is a Community Titles Scheme, the Scheme is Registered and so created);
(k) The Body Corporate Manager holds the First EGM for the Scheme/s;
(l) Settlements begin to take place.
For a midsize project, getting from (a) to (l) might take 18 months – for a large project it could take 2 years or more.
For these projects we would normally be attending project control meetings from (b) to (d) to assist and advise where required – all the time we are gathering information on the project and buildings and the more information we can gather the more accurate our budgeting forecasting can be. But that’s not all. Decisions often being made during these planning periods will impact the Body Corporate, and the way the Body Corporate/s might operate can impact the development, so good advice at these stages can be helpful to the development and marketing team.
At (d) stage the surveyor will be called upon to produce draft lot survey drawings and we need to interface with the surveyor. We will also be initiating the Sinking Fund Analysis and Insurance reports at this point, and we’ll be gathering other information we might need from the mechanical, electrical and other consultants. And when we get all the input data we need on the development at this stage we will produce the documents the solicitor needs for his sale contracts.
Following stage (d), unless there are amendments or revisions to the project, we will normally not be involved again until project completion in (i) and then over the following few days we will interface with the developer’s solicitor in preparing the Body Corporate for sale settlements.
One important issue right at this end point, and before the First EGM can occur, is that the insurance for the Scheme/s needs to be put in place. This is a developer’s responsibility to arrange and pay for, but we can assist in preparation and logistics so that it doesn’t hold up progress.
After we’ve got the information we need it will generally take us only a couple of days to produce the Contribution and Interest Lot Entitlement Schedules, the first year Budgets, and resulting Levies
The Body Corporate is formed automatically when the titles and Community Management Statement(CMS) are Registered by the Dept. of Natural Resources – and this occurs at stage (j) when the buildings are completed and have been Certified by Council.
As soon as titles and the Community Management Statement are registered, and the Body Corporate insurances are in place, we can draft the First EGM minutes and get those approved by your solicitor, and then set the Body Corporate up in our computer systems. That all takes a day or two normally and then we are in a position to issue Body Corporate Certificates and other documents for individual Lots and the sale settlements can begin
As part of the First EGM agenda mentioned in 2.5 above. One of the Motions on that EGM is for the Body Corporate to enter into a Management Agreement (for up to 3 years) with the Body Corporate manager.
As for the Body Corporate Manager – as part of the First EGM agenda mentioned in 2.5 above. One of the Motions on that EGM is for the Body Corporate to enter into a Caretaking and Letting Agreement with the resident management entity (often a private company or family trust owned by the resident manager). Sometimes the Body Corporate will enter into the Caretaking and Letting Agreement with an entity owned by the developer, and he may assign the Agreement to another party at a later time.
If there are any such Agreements e.g. a contractual maintenance agreement for lifts or fire systems, these might have been entered into by the developer and be novated to, and binding on, the Body Corporate, or they could be entered into at the time of the First EGM when the developer is the sole Owner of all Lots, however the preferred timing, and the more usual arrangement, is that such Agreements wait until at least the first AGM when the Body Corporate is represented by more individual Owners, and they can have more of a say as to what long term Agreements the Body Corporate gets locked into.
3. Who does what?:
(a) We will arrange for the Sinking Fund Analysis report to be prepared;
(b) We will arrange for the Replacement Insurance Valuation report to be prepared;
(c) We will prepare the Contribution and Interest Lot Entitlement Schedules;
(d) We will prepare Budgets for the Administration and Sinking Funds;
(e) We will prepare the Levies resulting from the above budgets;
(f) We will prepare a pro-forma Administration Agreement between the Body Corporate and us as Managers;
(g) We will prepare a set of draft By-Laws and offer them to your solicitor for his consideration;
(h) We will peruse and offer comment on any proposed Caretaking and Letting Agreement;
(i) We will coordinate the establishment of the first insurance policies for the Body Corporate;
(j) We will attend any meetings to facilitate any of the above;
(k) We will offer any assistance we can to any of your development team, solicitor, or other advisors;
(l) We will prepare minutes for the First EGM as soon as the new Scheme Registers, and then prepare for settlements;
(m) We will then manage the Body Corporate for the Owners in accordance with the Agreement between us and the Body Corporate.
Your solicitor would normally attend to the following important issues:
(a) Provide advice on the titling structure for the project and work with your surveyor and architect in this regard
(b) Draft the First Community Management Statement(CMS) and Building Management Statement(BMS), (if relevant) for the Scheme or Schemes and address any requirements for staged or progressive development and other relevant development issues in those documents
(c) Provide advice on the terms of proposed Agreements with the Body Corporate, including management rights Agreements and service contracts, to make sure they are commercial and appropriate for the scheme (as a developer you have a statutory obligation to do this).
(d) Prepare your off-the-plan contracts and Disclosure Statements and provide advice about disclosure and compliance requirements to ensure your contracts are secure and meet all relevant legal requirements. These documents will include the statutory warning statements and Disclosure Statements and the other documents prepared for the Scheme including the First Community Management Statement(CMS) which sets out the By-laws and Lot Entitlements and other essential information about the Scheme.
(e) Assist your team in running the sales and marketing program, ensure contracts are executed and satisfy presales conditions of your financier and provide advice on contract matters and the impact of any changes in the course of the development
(f) Be involved in construction contracts, financing and other activities associated with the project, especially in assisting you to meet draw-down conditions under your finance facilities.
(g)Attend to the Registration of survey plans and Scheme documents and liaise with us on Scheme establishment issues to help ensure you meet your obligations under legislation as the Original Owner of the Scheme and that the agreements and contracts you have forecast will be established are implemented.
(h) Attend to the settlement of the sales of units/Lots under contracts and the sale of Management Rights for the complex.
4. What do I need to know about Resident Managers?:
The Committee is the group of Owners who are appointed (by election or nomination) at each Annual General Meeting, to run the affairs of the Body Corporate for the next 12 months. The Committee comprises an ‘Executive’ – the Chairman, Secretary, and Treasurer, a number of Ordinary members, and possibly non-voting members (in the case of a Body Corporate with a Resident Manager/Caretaker and/or a Body Corporate Manager, representatives of these two entities are automatically nonvoting members of the Committee).
The Committee of a Body Corporate has wide powers – they effectively are like the Board of Directors of a Corporation, and are democratically appointed in accordance with the Act to run the Body Corporate – and provided they operate within their powers and the requirements of the Act, they should be permitted to ‘get on with the job’, and be supported by the rest of the Body Corporate.
Any residential Scheme of about 30 Lots or more can generally support a Resident Caretaker/Manager – for the Manager’s Letting side of the business to be viable he needs a reasonable percentage of the building to be owned by absentee Owners letting their units.
As to whether the benefits to Owners justify the cost to Owners in having a Resident Caretaker – from our experience there is justification. The benefits a good Resident Manager brings to the complex include:
(a) increased security – more heightened awareness of what visitors are on the complex and what they are doing;
(b) increased supervision and control of inconsiderate behaviour, and stricter application of By-laws to control such behaviour;
(c) better maintenance of the buildings and grounds;
(d) removal of a significant amount of the burden on the Committee as a lot of the maintenance issues are taken care of by the Resident Manager, including arranging for quotes from trades for larger jobs, and then supervising the caring out of those jobs by the chosen contractors;
(e) improved liaison between Owners and a ‘point of contact’ at the complex.
For all of these added benefits to their investment, each Lot Owner contributes about $20 a week i.e. their share of the Manager’s salary (factored into this is a reduction for what the building would have been paying to outside contractors for the maintenance that the Resident Manager does himself).
Developers sometimes place newspaper advertisements to sell the Management Rights for a complex, but the main avenue is via one of the specialised Management Rights brokers e.g. Resort Brokers and Venz Management.
We definitely need to know whether the developer is intending to have a Resident Manager for the complex, and the reason is that it has a significant impact on the Budgets.
We can also assist with perusing and commenting on the Caretaking and Letting Agreement – especially vetting the Resident Manager’s ‘Duties List’ to see that it is appropriate for the complex.
Your solicitor will need to draw up the Caretaking and Letting Agreement (we can assist) and this will need to be part of the Disclosure documents given to purchasers.
Depending on the project, a Management Rights operation can raise issue under the Managed Investment Scheme provisions of the Corporations Act and your solicitor will need to provide advice on this and its effect on sales contracts and disclosure requirements.
Your solicitor will also likely be involved in sale contract preparation or supervision for the contract of sale of the actual Management Rights themselves.
There are a number of factors that go into the calculation of market value for these Management Rights, and the rates change as the prevailing market conditions change. We recommend a developer talk to one of the leading Management Rights brokers for an appraisal – two of the market leaders are Resort Brokers and Venz Management.
5. What do I need to know, and do, regarding insurance?
Strata Schemes need a specialized strata policy and these are available from most of the leading insurance underwriters. These policies typically bundle different components into the one package e.g. a strata policy will normally include:
– the main building cover;
– loss of rent;
– personal accident;
– fidelity guarantee.
An additional component might be ‘Machinery Breakdown’ and normally this would be taken out if there is significant machinery on-site e.g. lifts. As a separate item of the policy, or a separate policy, Public Liability cover to at least $10Million is a statutory requirement to be taken out.
There is a statutory requirement under the Act that the Original Owner (normally would be the developer) needs to obtain and supply to the Body Corporate prior to the First AGM, a Replacement Insurance Valuation for the Scheme, so it is this valuation that indicates the correct sum insured for the insurance policy.
It is possible for this report to be done by the valuers ‘off-the-plan’ and so we get developers to arrange for this valuation report early in the project life so that we can use the figures in our budget estimates for the insurance premium.
The policy, or a cover note, must be activated as soon as the Scheme comes into existence so that protection for Owners is in place. In addition, the actual policy must be completely in place, and paid for by the developer for a full 12 months, and a Certificate of Currency supplied by the underwriter, prior to the First EGM being held. Because this First EGM must be held before any settlements can take place, you can see that this insurance issue becomes one of the ‘time critical’ elements, and so it’s important that this is coordinated properly so that it doesn’t delay settlements.
It is the developer’s responsibility to get the policy in place and pay for it – we can assist with quotes for the cover and coordination.
It is the statutory obligation of the developer to pay for it – for a full 12 months from the date of Registration of the Scheme. You can recover the costs of insurance established by you as an adjustment under sales contracts with buyers – your solicitor should address this in preparing the contracts.
6. What other things should I consider?
For larger developments there are bulk energy issues which are definitely worth exploring, e.g. bulk purchase of electricity by the Body Corporate at discount rates with the power then being individually metered and on-sold to Owners, central generation of hot-water by gas or electricity with the hot-water then being metered and on-sold to Owners.
There will be on-going savings to Owners and in some cases cost savings to the developer – but, it is essential that these issues are canvassed as early as possible in the planning stages to maximize cost savings. Contact us for further details and information on what we have been able to achieve for developers and owners.
Smart’ building technology can cover many things, e.g. enhanced building security systems, bio-recognition – being able to monitor your apartment via the web and maybe turn on air-conditioning remotely, check security – apartments wired for enhanced control of lighting – building precabled with optic fibre, etc. If marketing these initiatives is able to make your development more attractive then they are worth considering at the planning stages.
We highly recommend reference to the UDIA web site where they have an excellent area devoted to this aspect of development, an aspect that is growing in importance and relevance every day!
Notes about these FAQs
1. Please observe our rights in using this material – it is for your own personal use and must not be retransmitted in any form to any other person without our written permission.
2. This information on this page is intended to provide a general summary only and should not be relied on as a substitute for professional advice. No representation or warranty is given as to the application of matters referred to in this information for a particular development. Each development should be assessed and specific advice sought relevant to the circumstances and requirements of that development. If you rely on the information on this page without consulting us you do so at your own risk. The BCCM Act, BCCM Regulations, and other related Acts, are complex legislation and these FAQs and Answers do not necessarily apply to all cases, in all Schemes, under all circumstances.