Only in extraordinary circumstances should a purchaser of a strata property (whether residential or commercial) proceed to exchange contracts or bid at an auction without first reading a written report on the affairs of the owners’ corporation. But beware! These days they are often provided by the vendor, or their selling agent. Do you see a problem?

In a recent matter a purchaser was conducting his “due diligence investigations” in preparation for bidding on a home unit at auction. He was provided with a written report on the affairs of the owners’ corporation that had been obtained by the selling agent on behalf of the vendor. The report did not disclose any problems in the building that might be of concern to the purchaser.

However, the report was prepared by someone engaged by the vendor’s selling agent. Luckily the purchaser took the advice that he should be concerned that the person who prepared the report may not have been very diligent because they may have been worried that if they gave a bad report they might not get any more jobs from that source. Because of this, the purchaser decided to obtain a new strata report from an independent source.

The independent report disclosed that one of the buildings containing seven garages within the strata scheme had severe structural problems, a retaining wall within the grounds was in the process of falling over, and a driveway had cracked due to subsidence.

When further details were requested from the vendor’s solicitors they disclosed that the owners corporation expected that in the near future it would need to raise a special levy of $700,000.00, of which $35,000.00 would be payable by whoever owns the home unit at that time. The purchaser did not proceed.

This matter illustrates the important principle that when you are doing due diligence investigations in relation to any transaction (real estate, business, commercial leases, et cetera) you need to get your information about it from someone completely independent from the other parties.