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Understanding Body Corporate: 4 Essential Tips for First Time Buyers

Buying a townhouse

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Purchasing a property within a body corporate structure can be an excellent investment, offering access to shared amenities and a sense of community. However, it comes with unique responsibilities. Like any home purchase due diligence an essential step before signing on the dotted line.

Here’s are our tips on what you should understand, research and review before you go ahead.

1. Understand the basics of body corporate living

When you buy into a body corporate, you’re not just purchasing a townhouse or apartment; you’re also committing to shared ownership of common property and agreeing to abide by the body corporate’s rules and financial obligations.

If you haven’t lived in a body corporate before, this can be a new experience. Decisions about maintenance and use of common property are made collectively, often through the body corporate committee or at annual general meetings. You’ll need to familiarise yourself with the by-laws, participate in meetings when necessary, and contribute to shared expenses through levies.

Understanding the basics of levies, by-laws and what is and isn’t covered by your insurance can go a long way to eliminating surprises after you’ve moved in.

2. Review the by-laws

By-laws are the rules that govern the use and management of a body corporate property. By-laws typically address issues such as noise restrictions, pet ownership, parking, the use of common areas, and guidelines for renovations or alterations to individual lots. They form a legal framework that promotes communal living and minimises disputes among residents.

By-laws are enforceable, meaning residents and owners must comply with them. Failure to do so can result in warnings, fines, or other legal action, depending on the severity of the breach. Importantly, by-laws must not be unreasonable or discriminatory and must comply with the legislation governing bodies corporate in your state.

Before purchasing in a body corporate, it’s crucial to review the by-laws to ensure they align with your lifestyle and expectations, as they can significantly influence how you live within the property.

3. Know what’s not covered under body corporate insurance

While body corporate insurance provides broad coverage for shared property and the structural elements of a building, it’s important to understand its limitations. There are several items and scenarios not covered by the policy, which you, as a lot owner, will need to address separately.

Typically, body corporate insurance includes:

  • The building’s structure, such as walls, ceilings, doors, windows, and roofs.
  • Common property facilities like pools, gyms, elevators, and car parks.
  • Public liability for incidents on common property.
  • Legal expenses related to common property or body corporate matters.
  • Machinery breakdown for shared assets like elevators or pumps.

Body corporate insurance generally excludes items and responsibilities inside individual lots. These exclusions include:

  • Internal lot liability: Public liability incidents that occur inside your lot, such as a guest injuring themselves in your living room.
  • Personal contents: Furniture, clothing, electronics, and other personal belongings.
  • Flooring and coverings: Items like carpets, floating floors, and laminate or vinyl flooring.
  • Fixtures and appliances: Air-conditioners, dishwashers, and hot water systems specific to your lot.
  • Decorative finishes: Ceiling coverings, curtains, blinds, and other cosmetic elements.
  • Rental-related losses: Loss of rent due to tenant default.

See our article on what’s covered under a strata insurance policy.

4. Question low levies

When considering a property within a body corporate, it’s tempting to be drawn to low levies. After all, lower costs can seem like a great way to save money. Low levies, however, do not always indicate that the building is in good financial health or well-managed. In fact, they can sometimes be a red flag.

Levies are the fees collected by the body corporate from each lot owner to cover the costs of managing and maintaining the building and common property. These fees contribute to things like regular cleaning, landscaping, insurance, repairs, and administrative costs. A portion of the levies is also usually allocated to the sinking fund, which is reserved for future major repairs or improvements to the building. Watch our video understanding sinking and administrative funds.

If levies are consistently low, it may indicate that the body corporate is not adequately funding the maintenance and upkeep of the property. This could lead to several issues, costing more in the long run.

  • Deferred maintenance: Low levies may mean the body corporate isn’t putting enough money into maintaining common property, which can lead to neglect and the need for costly repairs in the future.
  • Inadequate sinking fund: A small or underfunded sinking fund might suggest that there’s not enough money set aside for major repairs or upgrades, which could eventually require special levies or larger than normal yearly increases to compensate.
  • Compromised insurance: Insufficient levies can sometimes result in underinsurance, leaving the body corporate vulnerable if a major claim needs to be made.
  • Cost-cutting measures: To keep levies low, the body corporate may cut corners on essential services, such as maintenance, security, or cleaning, which can negatively impact the condition and safety of the building.

Instead of focusing solely on the levies, consider the overall financial health of the body corporate. Request financial statements, including budgets and sinking fund reports, to see how funds are being allocated. Investigate whether maintenance has been up-to-date and if any major repairs are overdue. It’s also wise to check the building’s insurance policy to ensure it’s sufficient and comprehensive.

A building with higher levies might actually be better managed and more financially secure in the long run, as it’s proactively investing in maintenance and setting aside funds for future repairs. Don’t be swayed by low levies alone. Make sure to conduct proper due diligence to assess the overall condition and financial stability of the property.

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