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Is The OC Financially Sound

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A presentation to Strata Inspectors and Managers 14 June 2011

A presentation to Strata Inspectors and Managers 14 June 2011

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  • 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 Channels 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.comTeys Lawyers practice nationally in strata title law representing owners corporations,bodies corporate and apartment owners. The firm’s practice groups include buildingdefects, 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 atwww.teyslawyers.com.au©  Copyright  2011  Teys  Lawyers                  www.teyslawyers.com.au  

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