Firstly, it is important to know what strata loans are:
What are Strata Loans?
In certain situations, a Body Corporate may encounter unexpected costs for emergency repairs or major remedial works.
Ideally, there should be sufficient funds in the Sinking Fund. Also known as a Capital Expenditure or Maintenance Fund, to cover such costs.
However, if the funds are insufficient, the Body Corporate may need to explore other options. In such cases, obtaining a strata loan could be a viable solution. Thus bridging the financial gap and ensure timely completion of the necessary work.
What is Strata Finance?
Strata Finance is a specialised funding option provided by lenders with in-depth knowledge and comprehension of Body Corporate legislation.
Unlike conventional loans, strata loans are subject to tight conditions regarding their establishment and utilisation.
Interest rates on strata loans can either be fixed or variable, allowing flexibility based on the unique needs of the situation.
How to get a Strata Loan?
Before approaching a lender, there are several steps that a strata community should undertake. It may be necessary to engage a Project Manager and qualified service provider/tradesperson. Who can assess the scope of the works and provide accurate cost estimations. When applying for a strata loan, the lender will typically request the following documentation:
- Scope of proposed works/project: A comprehensive outline detailing the nature and extent of the planned project or works.
- Details of the number of lots and different owners: Information pertaining to the total number of strata units within the community and the corresponding number of individual owners.
- Aged debtor’s list: A report indicating any outstanding dues or debts owed by the strata community members, specifically highlighting aged or overdue amounts.
- Financial statements for the past two years: Complete financial statements covering a minimum period of two years, providing a clear overview of the strata community’s financial standing, including income, expenses, reserves, and any outstanding liabilities.
Additionally, it’s important to note that specific lenders may have additional requirements that go beyond the aforementioned documents.
Obtaining Approval from the Body Corporate
The details of the proposed works must be presented at either a Annual General Meeting or an Extraordinary General Meeting for all owners to vote on. The resolution should include the following information:
- Description of the work to be carried out: Clearly specify the type and scope of the proposed work or project.
- Loan amount and term: State the precise amount of the loan being sought and the proposed duration of the loan term.
- Lender’s name: Include the name of the chosen lender who will be providing the strata loan.
- Repayment plan: Outline the proposed method for repaying the loan, including any interest rates or repayment schedules that have been agreed upon.
By including these key details in the resolution, owners can make informed decisions. They can vote on the proposed works and associated strata loan with clarity and transparency.
Is there an Alternative?
The Body Corporate bear the responsibility of maintaining the common property in good condition.
In addition to seeking a strata loan, another option to consider is raising a special levy to cover the required expenses. The decision to establish a special levy requires the passing of an ordinary resolution at a General Meeting.
SSKB is Australia’s leading Strata Management company specialising delivering expert advice and management to Body Corporate communities.
This article contains general information only. It does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice.
