Hidden traps in hotel room investments

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2032

Leading strata lawyers warn that the fine print in contracts could conceal hidden costs, writes Jimmy Thomson

It’s the other side of renting out strata apartments as if they were hotel rooms; how about buying a hotel room and thinking it will be treated like a strata apartment?

Leading strata lawyers Suzie Broome and Beverley Hoskinson-Green are warning mum and dad property investors to read the fine print of any contracts when they buy into serviced apartments in new developments.

For, while strata law protects them to a certain extent, they can still lose money because of the  maintenance and  service contracts  they have signed up to.

“In some of these schemes they are guaranteed a modest return on their investment,” says Suzie Broome.  “But they have to lease the property back to the management company and then they discover that they are liable for all sorts of outgoings.

For instance, they are legally obliged to pay for the maintenance of common property – but they may not get to decide how often the lobbies and hallways are painted, or how frequently the rooms and corridors are carpeted.”

Beverley Hoskinson-Green refers to a recent case where investors took the hotel company to court, claiming they had been duped.

“The judge ruled that they were, effectively, sophisiticated ‘investors in a hotel venture’ and that it was all in the contracts,” says Beverley. “The truth was that they were just Mum and Dad investors who  thought they were buying into property with a guaranteed return.

“The contracts on these properties can and do fill a ring binder and even many solicitors and conveyancers don’t know where to look to see where the money goes out as well as comes in – especially if they aren’t strata specialists.”

Beverley Hoskinson-Green believes it’s time more effort was made to educate strata investors on the pitfalls as well as the possible benefits of property investment and Suzie Broome has noticed a sea change in the attitudes of some of the better developers.

“There are developers around today – especially in the bigger companies –  who can see there is more profit to be made from building a quality product and trying to keep their investors happy by dealing with any problems quickly and efficiently,” says Suzie. “They are building strong and reliable reputations and investors are flocking to them.

“Sadly there are also two-dollar companies that have no assets, no reputation to protect, no plan to  trade under the same name and no intention of doing the right thing.  There are also some big companies using two-dollar companies to do the building development, so there are no resources there to fix problems as they arise.

“The law won’t protect unwary investors so we have to protect ourselves – and that means educating ourselves before we sign our life savings away.

“Never has the phrase caveat emptor – buyer beware – been more relevant than in serviced apartment and hotel room investments,” added Beverley.

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