Strata Reports: 5 Red Flags Before You Sign

A strata report costs around $250 to $400. The information inside it can save you tens of thousands of dollars — or warn you away from a property that's about to drop a six-figure problem in your lap.

We order one on every strata purchase we act on. Here are the five red flags I look for first, and what each one tells you about what you'd be buying into.

What a strata report actually is

When you buy an apartment, townhouse, or any property in a strata scheme, you're not just buying the unit. You're buying a share of the owners corporation — the legal body that runs the building. The owners corporation has bank accounts, insurance, by-laws, a committee, levies, contractors, sometimes lawyers, and sometimes major problems.

A strata report is a paid inspection of the owners corporation's records. The inspector — usually a specialist company — reads through the minutes, financial statements, insurance certificates, by-law register, and any active disputes or claims, then summarises what they found.

You read the report. You decide what it means.

That's where the trouble starts, because a strata report is a stack of dense documents written in strata-management language. Without knowing what to look for, you can miss the things that matter.

Red flag 1: a capital works fund that's way under-resourced

The capital works fund (still commonly called the sinking fund) is the long-term savings account that pays for major repairs — painting, lifts, roof, waterproofing, common-area renewal. Under the Strata Schemes Management Act, every owners corporation has to maintain one and have a 10-year capital works plan informing it. Levies feed it. Contractors drain it.

There's no statutory minimum balance, and what's "healthy" varies a lot with building size, age, complexity, and shared infrastructure (lifts, pools, gyms). But when I'm reading a report on a building over 15 years old, I want to see a balance that genuinely reflects the upcoming 10-year plan — typically tens of thousands per unit for buildings with serious shared infrastructure.

If the building is 20 years old and the capital works fund holds $15,000 across 30 units, that's $500 per unit. Something is going to break, and there is no money to fix it. The owners will be levied — and the new buyer is "the owners" the moment settlement happens.

What this looks like in a report: the financial statements section will show the closing capital works fund balance. Compare it to the 10-year capital works plan, the building's age, and known upcoming repairs. If the gap is large, expect a special levy in the next few years.

Red flag 2: special levies — past, present, or pending

A special levy is an extra charge above ordinary quarterly levies, raised to cover a specific big-ticket cost. Owners get hit with a one-off bill.

Three kinds of special levy show up in reports:

Already raised and paid — usually fine, depending on what it was for. Worth noting in case the same problem recurs.

Already raised but not yet paid in full — this is one to watch. If a $1.2M special levy was passed last year and is being paid in instalments, you may be inheriting the remaining instalments. Read the contract carefully — some vendors will adjust at settlement, some won't.

Proposed but not yet voted on — the most dangerous. If the AGM minutes mention a pending special levy for facade remediation, balcony waterproofing, or cladding replacement, you're potentially walking into a five- or six-figure bill within months of buying.

I had a client last year who pulled out of a Parramatta apartment during cooling-off after the strata report revealed a $1.2M facade levy under discussion. Their share would have been $18,000 on top of the purchase price. The 0.25% cooling-off forfeit was the best money they ever spent.

Red flag 3: active building defect claims or litigation

Newer buildings — typically those under 10 years old — often have defects. The legal mechanisms for owners corporations to claim against developers and builders are slow, complicated, and expensive.

Look for:

• Active claims under the Design and Building Practitioners Act or the Home Building Act.
• Litigation against the developer for waterproofing, cladding, structural, or fire-safety defects.
• Special levies funding legal fees — often a tell that a defect claim is underway.
• NCAT matters (NSW Civil and Administrative Tribunal) involving the owners corporation.

A defect claim isn't automatically a deal-breaker. Sometimes it's the owners corporation doing the right thing, and a successful claim means the developer pays for repairs. But you need to know what you're walking into. Defect litigation can drag on for years, costs are uncertain, and in the meantime the defect itself usually still exists.

Red flag 4: a fractious owners corporation

This one is more art than science. You're looking for signs that the scheme is dysfunctional.

What dysfunction looks like in the records:

• Frequent NCAT applications over by-law disputes, levy disputes, or committee elections.
• AGMs that don't reach quorum repeatedly — owners are disengaged.
• High committee turnover — chairs and treasurers resigning, sometimes with strongly worded letters in the minutes.
• Active by-law disputes, especially around short-stay letting, pets, smoking, parking, or renovations.
• Multiple change-of-strata-manager events over a short period.

A dysfunctional scheme means everything takes longer. Maintenance falls behind. Repairs get delayed. Decisions don't get made. And when you eventually need the owners corporation to do something — approve your renovation, fix your leaking ceiling, sign a special by-law — you'll be dealing with a body that can't agree on anything.

Red flag 5: insurance issues

The owners corporation must hold building insurance, public liability, and (depending on the scheme) workers compensation. The strata report includes the current certificates of currency.

Look for:

• Coverage that hasn't increased with replacement cost. A building insured for $20M when the replacement cost is closer to $40M is underinsured. In a major loss, owners pay the gap.
• High excesses or specific exclusions. Some insurers exclude flood, water damage, or specific defect-related claims after a history of issues.
• Claims history. Frequent water-damage claims in particular can mean ongoing waterproofing problems.
• Premiums that have jumped dramatically. A premium that doubled in the last year is often the canary in the coalmine — the insurer has seen something.

What you do with all this

A strata report telling you bad news isn't the same as telling you not to buy. Sometimes the right answer is:

• Walk away. The risk is too high or the building is too far gone.
• Negotiate. Use the findings to ask for a price reduction. Sellers know what's in their building.
• Proceed with eyes open. The issue is manageable, you've budgeted for it, and you're getting a good price.

What you should never do is read the report and ignore it. I see clients who order the report, glance at the summary, and exchange anyway. Then six months later they get the levy notice.

How we use strata reports at Malko Conveyancing

For every strata purchase we act on, we order the report, read it ourselves, and send you a one-page summary that flags any of the five red flags above — with the relevant page references back to the report. You can call us with questions on it before cooling-off ends.

Most clients don't read the full strata report — that's why we summarise it. But please read our summary. That's what tells you what you're actually buying.

If you've ordered a strata report and want a second opinion, or you're about to put an offer on a strata property and want to talk through what to expect — book a free 15-minute call.