Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

A Great Idea: Pre-purchase Reports for Sectional Title Properties

pre-purchase property reportBy Jennifer Paddock

As many of you know, I spent a few years living in Australia and working in Strata (Sectional) Title there.

In Australia, when a person is looking to buy a strata property, it’s considered standard procedure for the prospective buyer to obtain a ‘pre-purchase report’. Think of it as a due diligence report. As the name implies, it is a report that the prospective buyer receives before officially buying a property.

In South Africa, no one seems to do this. Quite frankly, with all the issues we hear about from people who have bought into a sectional title scheme without doing their due diligence, I think that needs to change.

 

These are the types of things that you could expect to learn from a great pre-purchase report:

  • Factual information about what is actually being bought ie. what parts of the land and buildings will be owned exclusively and what parts are common property owned by all owners in the scheme.
  • The participation quota allocated to the section you are considering buying (the PQ determines your liability for levies, the weight of your vote and your share of ownership in the common property).
  • The financial position of the scheme including the total amount in the administration fund, the current ordinary and special levies for the unit in question and whether there are any special levies on the immediate horizon (and if so, what for).
  • Whether the scheme has a reserve fund and if so, how much it contains to cover major future repair and maintenance items.
  • The details of all insurance policies held by the body corporate and whether the scheme’s land and buildings are adequately insured.
  • Information on any significant known building defects such as problems with rising damp, structural issues such as movement in the walls (cracking), safety hazards or a faulty roof.
  • The date of the last AGM and a copy of the minutes.
  • A copy of the body corporate rules.
  • Whether pets are allowed in the scheme.
  • If the scheme has a managing agent – who the manager is and their contact details.

 

Why is it important to know this kind of information in advance of buying a sectional title property?

  1. You’ll know in advance the financial position of the scheme and whether there are any special levies on the horizon;
  2. You’ll know in advance what the problems are relating to the body corporate and the land and buildings;
  3. You can use this information to try and negotiate a lower price for the property due to the fact that you may have to pay to repair some of the problems; and
  4. You can get specialist advice about any major problems and how they will affect the property and its value over time.

For buyers to protect themselves financially and also to give themselves (or their tenants) the best chance of a good quality of life within the scheme, I believe pre-purchase reports should become standard procedure in South Africa, as they are in Australia.

 

Do you agree? Share with us by commenting below…

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8 comments on “A Great Idea: Pre-purchase Reports for Sectional Title Properties

  1. Karyl Ann Harcus-Brettenny
    November 2, 2015

    We have found it tremendously beneficial to supply a Pre-Purchase Report when a unit is for sale.
    Our Pre-Purchase Report is supplied to the Chairperson, Owner and Real Estate Agent.
    Once an Deed of Sale has been agreed to, the Pre-Purchase Report is also sent to relevant Conveyancing Attorneys.
    The Purchaser is aware of all relevant items pertaining to the scheme and the unit which he is purchasing.
    It is a win-win situation for all!

  2. Eurydice Stanton
    November 13, 2014

    I also agree, but only as to 10%. It seems that the previous commentators are attorneys, not estate agents. Having recently crossed over from the attorneys’ profession to being an estate agent, I can assure you that huge effort is being made within the estate agency industry to raise professional standards and accountability on the part of estate agents. Therefor, my response is that the “house check” report, as it is known in South Africa, is only required in respect of point 6 above. All the other points should be (and more and more often indeed are) dealt with by the estate agent. It is standard practice for estate agents to conduct a deeds office search (commonly via the Lightstone software) as a starting point before promoting any property for sale or lease. Agents are routinely taught to obtain more information about sectional title property from the managing agent or from the trustees of the body corporate. Many courses are run for estate agents concerning the intricacies of sectional title, to educate them as to the nature of the property being sold or leased, what information should be provided to a buyer or tenant, and where to obtain that information. Although there is a place for a house check report, and there are quite a few companies in South Africa which provide such reports, they certainly do not cover the other nine points listed above, and are much less qualified to do so than even the most novice estate agent. House check companies are staffed with persons skilled in building construction, electrical installations, plumbing installations and the like. They are not at all experts in the legal nature of property, particularly such specialised property as sectional title, and are not subject to the same industry standards of training and qualification as estate agents are. So, let the house check report cover the cracks and the damp, and leave the rest to the estate agent. Where the estate agent is found lacking, higher standards could and should be demanded of the estate agent. Indeed, I have found this to be the trend within the industry.

  3. Ursela
    October 30, 2014

    I also agree 100% but in another aspect I blame financial institutions that approves the Mortgages too – Banks are quick to “seal the deal” and insure that they receive their bond re-payments but never investigated what the deal was all about. Whether the deal is actually a sound structure to invest in or whether the purchaser, their new client, can actually afford the bond re-payment and pay the Sectional Title required Management fees, Levies, council service fees, etc. etc. Unfortunately the Body Corporate as a whole, is responsible to pay for the building insurance, electricity, water, sewer etc. In the 12 unit Sectional Title complex where I purchased many years ago we never had a problem but suddenly, since the “new South Africa” people have purchased units in our complex – they pay the bank/financial institute but refuse to pay for any Section Title Levies, electricity, water, insurance etc. etc. in a misconstrued manner the default owners expect the other owners to carry all the costs. The owners that pay every month are 8 out of the 12 units and at every AGM our Managing Agent raises the Levies and sadly we are not recovering the monies from default owners… lawyers take their time with costs just escalating and then nothing happens. No maintenance and repairs can be done at the complex which rightfully still is the property of the different financial institutions because the levy monies collected every month is used to pay for the council services which we all so desperately need. I must mention that one of the owners has never paid a cent for any services or insurance or any levies since they purchased their property 5 years ago and live in a lap of luxury. We are basically “bankrupt” and approaching the banks to resolve this issue is going to be very time consuming.

  4. Janice Wahl
    October 30, 2014

    Having been a trustee for many years in my building and having to “go through” many a new owner and/or tenants moving in the same issues arise over and over again especially with regards to the rules, how the levy works, exactly whay the person is buying or renting in particular with parking etc. It never ceases to amaze how people no matter how much they are told verbally still think they can do as they please causing unnecessary conflict and playing the blame game. If this information was mandatory for the seller to provide to the agents and formed part of the selling process that required it to be read and signed in full understanding it could also become a legal document for any future issues which may arise. I have experienced some good information on a report given to me by a Wakefields Agent regarding all the sales history, pricing etc which I found helpful when looking at a Sect title unit a while ago altho it di not touch on the deeper issues of the particular complex. Having learned through the years I am in a fortunate position to know what questions to ask, many do not. Community living is challenging and different to singular property ownership. Thank you for this. I plan to sell my unit next year and have a document prepared with this information as a matter of course.

  5. Craig Rowlings
    October 29, 2014

    This is 100% correct. Estate agents aren’t held to their word on details of a scheme and too often they give information based on assumption. Owners and potential buyers need to take more responsibility by requesting exactly this report.

  6. Stafford Handcock
    October 29, 2014

    Good idea. Include copies of the minutes of the last 2 Trustee meetings. They will give a good idea of how diligent the trustees and managing agent are, and highlighting current issues.

  7. Tarryn Woods
    October 29, 2014

    I agree. Purchasers need to be informed about what exactly it is that they are purchasing, and what the sectional plans, rules and financial documents mean for them as prospective owner. The nature and content of the rights to exclusive use areas in particular should be properly clarified. The pre-purchase report could even be incorporated in the agreement of sale as an annexure for the purchaser’s protection.

  8. Petro Engelbrecht
    October 23, 2014

    I agree 100%. The biggest culprits selling bogus ST comes from Estate Agents not informing new purchasers. The end result animosity with trustees who need to inform them.

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