Owners of unit titles need confidence that the Strata Manager knows the future
SPM Assets was pleased to sponsor the Facilities Management Association of Australia’s (FMA) “Good Practice in Residential Strata FM” Summit held in Melbourne on 7 September 2017. Here are the standout points from the event, as reported by Russell Caird, Asset Planning Specialist at SPM Assets.
This was a great event covering topics based around compliance, regulation, and future developments in the residential strata/body corporate sector.
The key takeaway was that proven asset management and works programme planning tools are urgently needed in this sector, particularly given the emerging regulatory environment and the increasing need for a more professional approach in medium to long-term management of the strata scheme Common Property. This represents a great opportunity given SPM Assets focuses on sound asset management planning and asset intelligence that drives an evidence-based works programme, with the goal to making buildings last forever.
Trends within the Strata/Body Corporate Sector
The increasing role of the strata sector as a key provider of new homes is quite astounding. According to ABS December 2016 quarter data, more apartments than houses have been built across Australia based on building approvals with 28,527 units completed compared to 28,102 houses. The indications are this trend is likely to continue.
Another trend is the increasing size and complexity of these developments with multiple strata schemes (including mixed use between commercial and residential) within a single development is common. These trends are creating larger and more complex common property considerations, including an increased need for a more professional approach in the management of these facilities, particularly for long-term capital works planning for the common property assets.
Regulation is Driving the Need for Asset Management Planning
The legislation regulating the sector is also changing in a response to these trends. While the legislation remains State based, the recent changes in the NSW legislation show how the sector will increasingly be required to better plan for, and accommodate best practice in, asset management planning for Common Property assets over the longer term.
There is a requirement for Owners’ Corporations to Plan for the future capital works that will ensure the common property is maintained at an appropriate level over the long-term. This is driven by the requirement for a “Capital Fund” that covers the required investment over a 10-year period. The “plan” must be reviewed every five years and for the large schemes (defined as greater than 100 units) this review is an annual requirement.
Unless there is a sound approach to asset management planning, the size of the required “Capital Fund” (previously referred to as a Sinking Fund) will be inadequately determined. In the absence of a component-based asset register, and a sound understanding of the relevant lifecycle of components, (e.g. mechanical and fire equipment, internal and external fabric, paint and floor coverings etc.), the timing of required renewals or refurbishment of components and the like-for-like costs the required funding is difficult to forecast adequately.
Another matter for consideration is the need to look beyond the legislated 10-year plan as some larger items such as lifts, pools and air-conditioning systems have lifecycles of greater than 10 years. This could lead to a material underfunding of the Capital Fund if the renewal or refurbishment of these items are inadequately planned for.
Failure to Plan May be a Risk for Strata
The obligation on the Owners’ Corporation, and specifically its operating committee, is to act in good faith. The question the committee members should be asking in regard to the “good faith” is have they considered the following:
- Have they developed a sound Asset Management Plan (AMP)?
- Does the AMP adequately account for renewals and refurbishments? Particularly for the larger and more expensive components including the timing of when these could reasonably be expected to be replaces or refurbished – i.e. a predictive lifecycle model.
- Do the funding calculations adequately accommodate the installation cost and removal of the old component?
- Have the logistics and safety issues, such as is scaffolding required, been accommodated in the replacement and refurbishment calculations?
Arguably a failure to have a sound capital works plan based on the lifecycle of components, which drives the levy calculations for the required Capital Fund, may leave the committee members open to a claim they have failed to act in good faith.
It is quite possible to imagine a scenario where a purchaser of a unit has a reasonable claim if they had received a copy of a capital works plan that failed to include the replacement of a lift or roof reaching the end of its reasonably expected life, and a special levy was raised for this item within one to two years of purchase.
Likewise, Strata Managers or Building Managers to whom the operating committee rely on for professional advice and guidance, may be held accountable if there is a lack of a sound Capital Works Plan.