“Excellent communication and information provided before and after the service. Far more detailed and helpful than other inspection companies I contacted. Wonderfully friendly and responsive throughout, kept me well informed of progress for compliance checks. Showed genuine interest and understanding for the concerns I had as first home buyer. Report was comprehensive and well presented covering all aspects of the property and concerns. Well worth every penny! Very grateful for the time and effort put in by the Surety team!“

Lory, First Home Buyer, Queanbeyan Area

“My whole experience was excellent. Customer service was the best we have had throughout whole build. Jacqui made the organisation easy. Both men who came to to inspections were knowledgeable- friendly and went the extra mile to help/ provide info. Each time I asked for information or clarity Surety were happy to help. The expertise of the inspectors has saved me thousands in picking up defects etc early.
I would recommend surety and will confidently use again.“

3 Stage Construction Client – Melanie (ACT)

“Peace of mind to get an independent building inspection for our property and boy did Surety Property deliver. The report was very in depth and was explained with all our queries answered. Just an absolute pleasure to do business with from start to end. Thank you Surety Team. “

Bernie, New Construction Inspections, Canberra region

If you are purchasing an off-the-plan apartment, you probably have some concerns, and rightly so – as there has been plenty of negative news in the media. On the upside, if you are committing to buying a fresh new apartment, just like you see in the brochures, but on the downside, you may be worried about obtaining finance or whether the developer will complete the development on time, or at all! And if all that goes well, what do you need to do about any defects?

It may feel like a risky path, so you need to understand what you are in for and what is in your contract from the outset and give yourself the peace of mind that you are actually making a good investment.

Can I complete?

Over the past year there has been an alarming trend of purchasers failing to obtain finance.

When buying off-the-plan, you are given a lengthy time between exchange and settlement – many years in some circumstances – and during that time, things can change. Financiers require a loan to value ratio that is within the lenders acceptable range. We have had:

• Clients whose apartments significantly decreased in value to an extent where financiers would no longer lend the amount required to settle or would require the purchaser to provide more funds towards the purchase price to ensure that the banks loan to value ratio is within the lenders acceptable range; or,
• Clients whose personally circumstances have changed, meaning they have been unable to obtain a loan.

This has placed our clients in difficult and stressful situations.

I’m not cashed up. What should I do?

Some strategies our clients have considered are:

• Finding an alternative source of funds: this is one possibility. However, it is becoming more difficult given the tighter lending criteria. The key here is to act as early as possible to ensure you can meet the settlement deadline by obtaining finance from a different financier or even obtaining assistance from a family member;

• On- selling the property: in some circumstances, clients have been successful in on-selling the property so that their purchase and the on-sale, settle simultaneously. This has allowed them to settle and move on. However, the problem with this solution is that there may be restrictions in relation to on-selling in the Contract. Further, at times, clients have not recouped the purchase price, leaving them to cover the shortfall as well as cover their out of pocket expenses; or,

• Negotiating a rescission: some clients have been successful in negotiating a rescission by mutual consent with the developer or (less frequently) terminating the contract. Terminating the contract is unlikely, given that the purchaser can only terminate the contract if the developer is in default. However, rescission by mutual consent can occur especially if they developer perceives they can sell the apartment for a higher price than they sold it.

What if the developer fails to complete?

Even if you are ready to hold up your end of the bargain, it does not mean the developer will. There are many reasons why developers simply fail to construct apartments even though they have entered into numerous contracts for the purchase of their apartments. These include a lack of presales required to obtain sufficient finance, banks tightening their lending criteria on developments, or developer insolvency.

In the event this happens, purchasers have limited options. In some circumstances the development will be acquired by another Developer who will continue and complete the building.  Sometimes, but not always, purchasers can rescind their contracts and get their deposit back. In other circumstances, the developer will assign the contract to another developer which can cause delays. It is very important to understand the terms of the developer’s contract and the purchaser’s rights and entitlements in each of these scenarios.

Post settlement qualms

More recently there have been several high-profile cases of major defects such as the Opal Tower scandal, which has left many purchasers questioning what to do in such circumstances.

One big issue that purchasers face when buying into a development over 3 storeys, is that they do not receive the benefit of the home-owners warranty scheme. Whilst there have been recent reforms requiring developers to lodge a Bond with the NSW Fair Trading for residential and mixed-use high-rise strata buildings of four storeys and over, the Bond is held to ensure that defects due to defective building works are rectified.

For buildings that are 3 storeys or under, legislation requires the developer to have taken out insurance known as the Home Building Compensation Cover. Purchasers having difficulty with any major defect rectification can lodge a claim through the insurance. In these circumstances’ purchasers should be prepared for the fact that they may have to face lengthy insurance claims or even litigation.

NSW government stepping in further

To enhance purchaser protections, there have been recent legislative reforms to address off-the-plan risk issues. For example, in recent years laws were enacted to ensure a developer could not rescind a Contract as a result of the sunset date expiring without seeking leave from the court.

Further amendments commencing 1 December 2019, seek to further enhance consumer protection and cover the following issues:

1. New disclosure statement requirements: In the past a developer did not have to disclose all aspects of the development, in some situations Contracts did not even hold an appropriate Draft Strata Plan. This essentially meant that a purchaser did not have a clear indication of a number of things including the size, inclusions, any easements or by-laws anticipated to be registered. From 1 December 2019, the developer is required to provide a disclosure statement in an approved form, which outlines much of the above and it must be attached to an off-the-plan contract before it is signed by the purchaser. Failure to provide a disclosure statement will allow the purchaser to rescind the contract within 14 days after the contract is entered into.

2. Requirement to notify the purchaser if the disclosure statement is incorrect:  In the past developers would usually not provide a purchaser with any updated draft plans or documents after contract signing, until the property was completed and settlement was called for, catching purchasers by surprise at settlement. New legislation imposes a requirement for the developer to serve a notice on the purchaser if anything in the disclosure statement is incorrect or inaccurate. If the changes are substantial and would have a detrimental outcome on the property being purchased, within 14 days, the purchaser may then either make a claim for compensation or serve a notice of rescission.

3. 10 business days cooling off period: the purchaser will now receive a 10-business day cooling off period, which is an additional 5 days on top of the usual 5 days. The cooling off period can be waived or shortened by a certificate signed by the purchaser’s lawyer, which is often required by developers.

4. Deposit to be held in trust: In the past many developers would have a condition in the Contract allowing the deposit to be released to the developer.  The new legislation requires the deposit or instalment monies paid by the purchaser be held either a solicitor’s, conveyancer’s or real estate agent’s trust account until completion.

5. Purchasers are not required to complete until 21 days after receiving registered plan and documents: it is common practice for completion to take place 10-14 days from the date on which the purchaser receives written advice that registration has occurred. The amendment will ensure the purchaser has more time, namely 21 days after receiving full copies of the registered strata plan or deposited plan and ancillary documents relied upon for registration, before completion takes place, this will ensure that the purchaser has sufficient time to ensure their lender is ready to settle and their Solicitor or Conveyancer will have sufficient time to prepare for settlement and obtain and searches that may be required.

Buyer beware

The Sydney property market and apartment market has endured a rollercoaster ride over the past few years. With increasing auction clearance rates in Sydney and Melbourne, the market is starting to gain traction and will likely result in more off-the plan- apartments coming on the market.

Conclusion

With many purchasers signing contracts at display suites without legal advice, it is important that purchasers understand their rights and obligations early from the outset to ensure that their investments and the purchase process result in a positive experience without any surprises.

By Ashlee Brew, Barbara Shafton

#offtheplan #buyingofftheplan #buyerbeware

“Jacqui and Grant were fantastic – professional, reassuring and really took the time to make sure I understood the report/what services Surety could provide. They made a stressful time much less intimidating! “

Ellen, First Home Buyer, ACT

“I met with Brendan on-site for a verbal debrief, and he was great – easy to speak with, and he was great at explaining things to me in a non-technical way. He’s given us a couple of things to think about, but that’s exactly what you guys are there to do.“

Chris & Pam, Canberra

Well, the dust has finally settled on the new legislation regarding the changes to depreciation that will apply to second-hand residential properties.

In this article we will dig deep into some of the questions we have commonly been asked since the 9th of May 2017, when the changes were announced in the Federal Budget.

Before we get into the nitty gritty let’s begin with a quick recap.

Property investors who acquire a second-hand residential property after May 10, 2017, that contain “previously used” depreciating assets, will no longer be able to claim depreciation on those assets. Depreciating assets, in this case, refers to things like ovens, dishwashers, blinds, etc.

As you already know, in 2017, the rule book on depreciation changed massively.

The Federal Government successfully voted on new legislation to change the way depreciation works, representing the biggest move in the industry that I’ve ever seen – and I’ve been a quantity surveyor for over 25 years!

The changes were effective as at 9 May 2017 at 7.30pm, when the federal budget was handed down. As you can imagine, they have huge implications for property investors and more importantly, the property equation, which we’ll go into later.

So, how have things changed exactly?

The best way to understand it is to break the changes down into nine simple key points:

• If you acquire a second-hand residential property from 10 May 2017, which contains ‘previously used’ depreciating assets, you will no longer be able to claim depreciation on those assets. This refers to the plant and equipment portion of a depreciation schedule, including: Ovens, Dishwashers, Lights, Air-conditioners. Televisions, Carpets, Lounge suites, Blinds, Common property plant and equipment items.
• However, the building allowance, or claims on the structure of the building, has not changed at all. You will still need a depreciation schedule to calculate these deductions, which typically accounts for 85% of the overall construction cost. The structure includes things like brickwork and concrete so there’s no change to that.
• Acquirers of brand-new property will carry on claiming depreciation in exactly the same way as they have done so to-date – for both plant and equipment and structure. This is great news for the property industry, because a lot of developers rely on depreciation as part of their marketing strategy to attract investors. The government resisted making changes to depreciation on brand-new property because it did not want to halt construction, which would have impacted upon the supply of new property. A downturn in the construction industry would also have a knock-on effect – if tradies are out of work, they aren’t paying tax!
• If you renovate a house while living in it, then sell the property to an investor, the assets will be deemed to have been previously used and the new owner cannot claim depreciation on the plant and equipment.
• The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note self-managed super funds do not apply here) or a large unit trust. In other words, you can still buy a second-hand property in a company name and claim depreciation on it. You can buy a second-hand property in a super fund – as long as it’s a large one – and a large trust can buy a property as long as it has 300 members or more, and claim depreciation on that property.
• The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected, so you can still buy a second-hand office or similar and continue to claim the second-hand carpet, exactly as you could before. You can’t do this for residential property, as I’ve explained above.
• If you engage a builder to build a brand-new house, or do the work yourself and it remains an investment property, you will still be able to claim depreciation on both the structure and the plant and equipment items. This is because it’s brand new, and was brand new when you put in that oven. Therefore, you can still claim it because the costs are known.
• If you engage a builder to renovate a property – or you do the work yourself – and it is also being used as an investment property, you will still be able to claim depreciation on it when you have finished the renovations. As above, this is because the assets you install are brand new, therefore you can still claim. But if you bought a property renovated by someone else and they lived in it for six months or a year and then sold it – you can’t claim depreciation on the oven and dishwasher, etc. in the future, because they have now been previously used. See the difference?
• While investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property. How? Well, when they replace or remove an item of plant & equipment they would have been able to claim in depreciation under the previous legislation, the opening value of the asset can be claimed as a capital loss.

  In my opinion, it seems like a lot of work to get the same result. The new rules have just moved depreciation from one line of the budget to another!

  The good news is that the new legislation is ‘grandfathered’. That means that for everyone out there with an existing depreciation schedule, you can continue to claim exactly as you have been doing. So, if you bought a property prior to the budget – 9 May 2017 – nothing has changed. And if you have bought an investment prior to this date, and you don’t have a depreciation schedule, there’s never been a better time to get one! You might not get these allowances again.

  One final point on grandfathering; if you bought a property prior to the budget and it is owner-occupied, and then you move out after 1 July 2017 – you will not be able to claim depreciation on the plant and equipment in that property.

  Those items will be deemed to be previously used and caught in the net of the changing legislation – even though you acquired the property prior to the budget. So, these changes are kind of ‘half grandfathered’ if you ask me.

  You will, however, still be able to claim the building allowance in this scenario if the property was built after 1987.

#depreciationschedule #washingtonbrown #secondhomesdepreciation

The requirement by Local and Government authorities for Dilapidation Reports to be carried out before construction, and civil work commencement is becoming more of a standard requirement.

Construction companies are now finding themselves having to factor these costs into budgets and their due diligence process. Many councils will not allow commencement of a project until a Dilapidation Report has been carried out and signed off by a PCA (Private Certifying Authority) or council themselves.

Treating Dilapidation Reports as just another box to tick can be a very big mistake.  In my experience, many project managers do not treat this seriously and either carry out quick assessments themselves or engage consultants based on keen pricing rather than reliability, quality, detail, and accuracy of the inspection and report. It’s often the case that these reports are not even reviewed at the point of delivery. This places the construction company at unnecessary risk, especially if they are later looking to rely upon them for detail to ultimately protect them against any potential claim.

I recently worked with a construction company who had found out the hard way. The project manager had engaged a consultant to carry out the reports on their behalf and ran into problems when they received a complaint from a property owner during the construction of a major highway. The construction company had not placed a great deal of importance on choosing the consultant and was price-driven, nor had they looked at the reports at the time of the delivery. And it was only when they needed to rely upon the reports that it was evident that the detail wasn’t there to protect them and their risk mitigation strategy had failed. As a result, this dispute caused lengthy negotiations and unnecessary additional work and stress for the Project Manager and his team.

Unfortunately, all the inspections and reports were unacceptable, and all of the inspections had to be carried out again, which caused over-runs in time and budget.

It seems most construction companies take the punt on taking the easy path; however, on a risk matrix, it could be considered high risk depending on the complexity and proximity of the construction to building structures. Most projects can run smoothly and have no issues from property owners, but if you do, you want a report that is going to protect you against a claim.

Unfortunately, we have seen situations where property owners use the opportunity to take advantage of a building defect that already existed and use the construction work as a catalyst to try and get it fixed. Cracking is a good example of when detailed photos need to be included to demonstrate the size of a crack before construction commenced, which brings me to the next point. The importance of quality photos and location reference points is critical in being able to prove a defect may have already existed, and if not, you may have no leg to stand on.

So, in summary, Dilapidation Reports are becoming a commonplace. I encourage construction companies to take this process seriously and ultimately reduce your risk or at least mitigate your risk getting it wrong could be a costly mistake.

The photos above clearly detail the size of cracking and where and when it was identified (source: supplied)

#dilapidationinspections #buildersbeware #stratadilapidationinspections #Dilaptipsforconstructioncompanies

There are some key questions and skills to look for when engaging building consultants to carry out dilapidation reports on your behalf. You need to know what quality and detail you are going to receive in return for your investment.

Several key questions to ask are:-

1. Can you provide sample reports from similar projects?

So why not ask for sample reports. You need to know that the consultancy firm can manage and prepare a report based on the type of project you are working on. The project may require inspections on government infrastructure, residential homes, commercial property, etc. and therefore you want to see a report reflecting the different reporting required for each of these to ensure they provide you the detail and quality you should expect. Without seeing a sample report could put you at risk of engaging a company who is not capable of providing the detail and quality you require to protect yourself from future claims and increases your risk of problems in the future.

2. Can you provide me with referees?

You want to know they have completed past projects to a high standard and have delivered on the outcomes.

If you haven’t used the consultancy company previously, I recommend that you speak with any referees. It is amazing how many times in our business we have spoken with referees and are told some home truths about the sub-standard work carried out.

3. Does the consultancy firm use its staff or contractors?

It is something you want to know. It is common practice for a consultancy firm to put in a low rate to win the job and then try and source local contractors at a low rate. Unfortunately, this generally means the quality of the inspection and report will be of a low standard. The result is putting your construction company at risk of claims. Many of these contractors in the local area would not have carried out dilapidation reports previously and it is a specialist field requiring properly trained teams.

4. Do you carry the correct insurances?

Let’s face it dilapidation reports are all about managing risk. Ensure they have Professional Indemnity, Public Liability, and Workers Compensation insurance and that the coverage is adequate for the work they will be undertaking.

Communication and customer service is always key to a good relationship

You want to know that the consultancy firm are good communicators with both your team and your property owners. Most importantly, they care and have empathy and respect for the property owners, building owners, tenants, government agencies, and business owners when they are carrying out the dilapidation report on their property.

In most cases, the engaged company will be representing your company. You want them to represent you well, attend on time, and be well presented in attire, and be an advocate for your business.

In can sometimes be a tense time for the property owners who are about to experience disruption during the construction process and could be upset and annoyed so you want to know the consultancy firm can handle these tender situations. You don’t need an individual inspector aggravating the occupant or owner you want them to be working to calm situations.

You need the consultant reporting back to you throughout the process and updating you on the progress.

Reducing your risk

Having a good team of dilapidation consultants working with you and doing the right job will reduce the overall involvement, stress on your team and in turn reducing your risk of any significant claim.

When you get your reports do the following:

Ensure you take a good read or review before just filing away.

Make sure they have a sufficient number of photos and detail in the report so you can rely upon them in the event of a situation.

Not getting this aspect of your project right from the start can be costly so taking the time to find and engage a quality consultant, understanding what a report contains and being able to easily find a report at a later date can save you plenty.

The kind of detail you could be looking for in a photo is as shown below. The level of detail and photo quality is significantly important especially if you are expecting to need to rely upon the information provided to protect you from a potential issue or claim. The location will need be clearly detailed either on the photo or within the report, preferably both.

#dilapidationinspections #buildersbeware #stratadilapidationinspections #Dilaptipsforconstructioncompanies

“Bruce, thanks for all your work and effort on the Batemans Bay Bridge Project, It’s been great work and a lot of pressure taken off the team based on your professionalism, Tom Laslett, Project Manager NSW/ACT Infrastructure, John Holland ”

Tom Laslett, Project Manager NSW/ACT Infrastructure, John Holland