Due diligence on sectional title units is vital
Prospective buyers should do a thorough due diligence of a sectional title property before committing to a purchase. This should include both a condition inspection report (home inspection) and a due diligence of the body corporate.
As most people know, a sectional title property differs from a freehold property in that the freehold property owner has exclusive ownership of the entire property, whereas the sectional owner has exclusive rights to only a section of the property – normally the interior of the dwelling unit. The balance of the sectional title property is under the control of a body corporate – this includes common areas such as parking and gardens and exclusive use areas such as courtyards, parking bays or even balconies.
Buyers of sectional title property sometimes discover too late that the sectional title scheme’s body corporate has not been well run. Some common problems are: The financials have not been properly kept; levies are not up to date; the body corporate is in debt to the local municipality for non-payment for rates and utilities; or maintenance of the grounds and exteriors has been neglected and the prospect of a large special levy looms.
Buyers (and owners) of sectional title units should scrutinize the financials of the body corporate and also the minutes of body corporate meetings. Banks usually assess the financial health of a sectional title scheme before granting a bond to a prospective buyer, but buyers should not rely on this. Best to do your own homework.
A home inspection report should, of course, be part of the due diligence process for buyers into a sectional title scheme. The prospective buyer obviously needs the home inspector to check the condition of the interior of the unit, but the home inspector should also, as far as possible, also check the common areas,
Maintenance of the roofs and exteriors is usually for the account of the body corporate. However, if the home inspector identifies issues with the roof and exteriors, this is usually an indication that the body corporate has been neglecting regular maintenance and repairs.
Buyers should also study the rules of the body corporate to check which areas of the scheme are defined as being the responsibility of the body corporate. Grey areas may include: Balconies and hot water geysers located outside the unit (in the roof cavity for instance). Balconies, especially, are often a huge issue. If the concrete slab above leaks through to the unit below, then the question as to who is responsible is important: Is it the body corporate, or is it the unit owner above?