If you’re in the market for a brand new apartment, especially one off the plan, there are some fairly major scams that you want to avoid if you possibly can. A current favourite is for developers to retain ownership of crucial areas of buildings then lease them back at ridiculously high rents.
We’ve heard of one building about to be completed in Sydney where the developer plans to hold on to the foyer, swimming pool and gym, then lease them back to the Owners Corporation. This not only ensures a steady income stream from people who may, quite reasonably, have thought that they already owned these facilities as part of common property, but it also means the developer has a sizable say in the ongoing running of the building.
OK, it’s a case of buyer beware but with today’s long and complex apartment sales contracts, it’s easy to hide these grubby little cons. So ask for a statement in writing of all the facilities, including foyer, public areas, meeting rooms, gyms, pools etc that will come under common property and those that won’t. Then, if they try to renege on it, you can tear up the sales contract and go and buy elsewhere.
Another favourite trick is for developers to get new owners to sign over proxy votes or even power of attorney, which lasts longer. This allows the developer to get round laws designed to stop them having too much influence over the building once they have sold the apartments. That control in turn means they can assign long-term, lucrative and potentially damaging management contracts to their subsidiaries or “mates”.
These contracts are often at inflated fees while exclusive letting clauses allow them to make even more money off rentals. Even worse, some pro-developer managers will camouflage building defects as maintenance issues, meaning you pay to fix things that were never right in the first place. How do you as an off-the-plan buyer avoid this? You could refuse to sign over your proxy but really, if the developer is demanding proxies, don’t buy there at all. There must be some reason they are trying to skirt strata law and you don’t want to find out what that is when it’s too late to back out.